July 10, 2018 / 7:57 PM / 9 days ago

CANADA FX DEBT-C$ dips as investors await BoC guidance, potential rate hike

 (Adds strategist quotes and details on activity; updates
prices)
    * Canadian dollar at C$1.3124, or 76.20 U.S. cents
    * U.S. oil rises 0.4 percent
    * Bond prices higher across a flatter yield curve
    * Canada's 2-year yield touches six-week high 

    By Fergal Smith
    TORONTO, July 10 (Reuters) - The Canadian dollar edged lower
against its U.S. counterpart on Tuesday as investors awaited
guidance on the economic outlook that could accompany a
potential interest rate hike from the Bank of Canada on
Wednesday.
    Money markets see a greater than 90 percent chance that the
central bank will lift its policy rate by 25 basis points, to
1.50 percent, which would be the fourth hike since last summer.
          
    With a rate hike largely priced in, direction for the loonie
could rest on the Bank of Canada's outlook for the economy.
    "It really depends on how the market interprets the
communique tomorrow," said Bipan Rai, North America head of FX
strategy at CIBC Capital Markets.
    Rai expects the central bank to use neutral language, which
could disappoint investors who are looking for a "dovish hike"
in the face of elevated trade uncertainty.
    A dovish hike refers to a rate increase accompanied by
guidance from the central bank that reduces expectations for
additional tightening.
    A trade row between Canada and the United States will not be
enough to stop the Bank of Canada from raising rates this week,
but bigger storm clouds over trade could mean it is the last
hike for a while, analysts and financial markets believe.
            
    At 3:30 p.m. EDT (1930 GMT), the Canadian dollar         
was trading 0.1 percent lower at C$1.3124 to the greenback, or
76.20 U.S. cents.
    The currency, which on Monday touched its strongest intraday
level in nearly four weeks, at C$1.3066, traded in a range of
C$1.3103 to C$1.3146.
    The price of oil, one of Canada's major exports, was
supported by supply concerns in Norway and Libya. U.S. crude oil
futures        settled 0.4 percent higher at $74.11 a
barrel.                
    Speculators have raised bearish bets on the Canadian dollar
to the most since June 2017, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
Monday.             
    The value of Canadian building permits rose 4.7 percent in
May from April, reversing the prior month's decline, Statistics
Canada said.             
    Data from the Canada Mortgage and Housing Corp showed that
Canadian housing starts surged in June.             
    Canadian government bond prices were higher across a flatter
yield curve, with the two-year            up 1 Canadian cent to
yield 1.939 percent and the 10-year             up 14 Canadian
cents to yield 2.153 percent.
    The two-year yield touched its highest intraday level since
May 25 at 1.959 percent.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and
Leslie Adler)
  
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