July 19, 2018 / 3:05 PM / 3 months ago

CANADA FX DEBT-C$ drops as U.S. dollar gains; trade, commodities weigh

    * US dollar rises broadly, weighs on CAD
    * Commodities mixed: metals down, oil recovers
    * Spread between U.S.-Canadian 10-year yields continue to
widen

    By Gertrude Chavez-Dreyfuss
    July 19 (Reuters) - The Canadian dollar fell to a three-week
low against a broadly strong U.S. dollar on Thursday, hammered
by weaker commodity prices and lingering uncertainty about
global trade after President Donald Trump said the United States
wants to negotiate bilateral deals with Canada and Mexico.
    In midmorning trading, the U.S. dollar rose 0.7 percent
against the Canadian currency to C$1.3256         , after
earlier hitting a three-week peak of $1.3268. So far this year,
the Canadian dollar has struggled, down 5.4 percent against the
greenback.
    Against a basket of six major currencies, the U.S. dollar
gained 0.3 percent to 95.403       .
    The Canadian dollar, meanwhile, also fell against the euro,
which rose 0.4 percent to C$1.5383          . It also slipped
against sterling, which gained 0.1 percent to C$1.7226
         .
    Lower commodity prices weighed on the commodity-based
Canadian currency. Metal prices were down with gold          
and silver           on the defensive. 
    Benchmark Brent crude oil         and U.S. crude futures
       have recovered in the New York session, after posting
losses earlier in global trading. 
    Brent has fallen almost 9 percent from last week's high
above $79 on emerging evidence of higher production from Saudi
Arabia and other members of the Organization of the Petroleum
Exporting Countries.
    Global trade issues, meanwhile, remained a headwind for the
Canadian dollar.
    A day after Trump said he may negotiate separate trade deals
with North American Free Trade Partners Mexico and Canada, David
MacNaughton, Canada's ambassador to the United States, said he
was confident that talks to modernize NAFTA would maintain the
trilateral nature of the pact.             
    This was not the first time that Trump had suggested
bilateral deals with Mexico and Canada, as he vowed to deliver
on his campaign promise to revamp NAFTA. 
    "From Canada and Mexico's standpoint, it's not clear what
their incentive is to engage in bilateral talks. Such a setup
would weaken their leverage in negotiations and strengthen the
U.S. from a leverage point of view," said Mazen Issa, senior FX
strategist at TD Securities in New York.
    Meanwhile, Canadian government bond prices were higher
across the curve and yields were lower, tracking the U.S.
Treasuries market.
    The two-year yield            fell to 1.933 percent,
compared with 1.953 percent late on Wednesday, while the 10-year
            was down at 2.116 percent from Wednesday's 2.149
percent.
    The spread between the U.S. 10-year Treasury and Canadian
10-year yields widened slightly on Thursday to nearly 74.34
basis points              . The yield gap has expanded since the
beginning of the year in favor of the U.S. dollar. 

 (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)
  
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