October 26, 2018 / 8:18 PM / 19 days ago

CANADA FX DEBT-C$ hits a 6-week low as stocks slide; losses pared

 (Adds strategist quotes and details on activity; updates
prices)
    * Canadian dollar retreats 0.1 pct against the greenback
    * Loonie touches its weakest since Sept. 11 at 1.3160
    * Bond prices rise across flatter yield curve
    * Gap between 2- and 10-year yields hits narrowest in 11
years

    By Fergal Smith
    TORONTO, Oct 26 (Reuters) - The Canadian dollar slumped to a
six-week low against its U.S. counterpart on Friday before
paring its decline, as a sell-off in global stock markets offset
the boost the loonie got earlier in the week from a Bank of
Canada interest rate hike.
    Stock markets around the world fell as better-than-expected
U.S. economic data did little to ease anxiety over disappointing
corporate profits and trade wars.             
    Canada runs a current account deficit and exports many
commodities, so its economy could suffer if the flow of trade or
capital slows.
    "It has been quite choppy," said Andrew Kelvin, senior rates
strategist at TD Securities. "This very negative sentiment
around equities combined with the fact that you've had this
hawkish surprise from the Bank of Canada, it creates
counteracting influences on Canadian fixed income and on the
currency."
    Canada's central bank on Wednesday raised its key interest
rate by 25 basis points to 1.75 percent, its fifth hike since
July 2017, and said it might speed up the pace of future hikes
given that the economy was running at almost full capacity and
did not need any stimulus.             
    At 3:46 p.m. (1946 GMT), the Canadian dollar          was
trading 0.1 percent lower at 1.3082 to the greenback, or 76.44
U.S. cents. The currency touched its weakest intraday level
since Sept. 11 at 1.3160.
    For the week, the loonie was up 0.1 percent.
    Speculators have cut bearish bets on the Canadian dollar to
the lowest since March, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. As of Oct.
23, net short positions had decreased to 7,228 contracts from
11,019 a week earlier.
    The price of oil, one of Canada's major exports, was
supported by expectations that sanctions on Iran would tighten
global supplies. U.S. crude oil futures        settled 0.4
percent higher at $67.59 a barrel.                         
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries, as the sell-off in
stocks boosted demand for safe-haven government debt.
            
    The two-year            rose 9 Canadian cents to yield 2.266
percent and the 10-year             climbed 51 Canadian cents to
yield 2.391 percent.
    The gap between the two-year and 10-year yields narrowed by
1.5 basis points to a spread of 12.5 basis points, its smallest
since October 2007.

 (Reporting by Fergal Smith; Editing by David Gregorio and
Richard Chang)
  
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