June 11, 2018 / 1:40 PM / 6 months ago

CANADA FX DEBT-C$ weakens as Trump-Trudeau fallout adds to trade worries

    * Canadian dollar at C$1.3013, or 76.85 U.S. cents
    * Bond prices higher across the yield curve
    * Canada-U.S. 2-year spread hits widest in more than one
year

    TORONTO, June 11 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday after U.S. President
Donald Trump, who has threatened to scrap the NAFTA trade pact,
attacked Canadian Prime Minister Justin Trudeau in their feud
over trade, and as oil prices fell.
    Trump fired off a volley of tweets on Monday venting anger
on NATO allies, the European Union and Trudeau in the wake of a
divisive G7 meeting in Quebec over the weekend.             
    Trump tweeted on Saturday that Trudeau’s remarks at a news
conference, where he said Canada would not be pushed around,
“were very dishonest and weak.”
    The loonie has been pressured recently by new U.S. tariffs
on steel and aluminum imports and slow-moving talks to modernize
the North American Free Trade Agreement.
    Canada sends about 75 percent of its exports to the United
States and so its economy would be badly hit if NAFTA were 
scrapped.
    The price of oil, one of Canada's major exports, was pulled
down by rising Russian production and the highest U.S. drilling
activity in more than three years. U.S. crude        prices were
down 1.1 percent at $65.05 a barrel.             
    At 9:16 a.m. EDT (1316 GMT), the Canadian dollar         
was trading 0.7 percent lower at C$1.3013 to the greenback, or
76.85 U.S. cents. The currency traded in a range of C$1.2957 to
C$1.3027.     
    Losses for the loonie came after data on Friday showed the
Canadian economy unexpectedly shed jobs in May. Still, wages
rose at their strongest annual pace in nearly six years, which
could give the central bank room to raise interest rates as soon
as July.                  
    Speculators have added to bearish bets on the Canadian
dollar, data from the U.S. Commodity Futures Trading Commission
and Reuters calculations showed on Friday. As of June 5, net
short positions rose to 16,039 contracts from 15,690 a week
earlier.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 3.5 Canadian cents to
yield 1.907 percent and the 10-year             rising 14
Canadian cents to yield 2.307 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent widened by 4.7 basis points to a spread of -61.7
basis points, its widest since May 2017.

 (Reporting by Fergal Smith
Editing by Frances Kerry)
  
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