January 25, 2019 / 10:04 PM / 6 months ago

CANADA FX DEBT-C$ notches biggest gain in 4 months as investor optimism rises

 (Adds investor quotes and details throughout, updates prices)
    * Canadian dollar rises 1 percent against greenback
    * Loonie touches its strongest level since Jan. 11 at 1.3218
    * Currency rises 0.3 percent for the week
    * Price of U.S. oil rises 1.1 percent
    * Canadian bond prices fall across a steeper yield curve

    By Fergal Smith
    TORONTO, Jan 25 (Reuters) - The Canadian dollar rallied to a
two-week high against its broadly weaker U.S. counterpart on
Friday as oil prices rose and a deal to end the U.S. government
shutdown helped boost stocks.
    U.S. President Donald Trump said he and lawmakers agreed to
advance a three-week stop-gap spending plan to reopen the
government. This helped boost investor sentiment, which faltered
in recent days in the face of revived jitters related to the
shutdown and the prolonged U.S.-China tariff spat.             
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could benefit from an
improved outlook for the global flow of trade or capital.
    "It is a risk-on day," said Michael Greenberg, portfolio
manager for Franklin Templeton Multi-Asset Solutions. "Equity
markets are up, yields are higher, credit spreads are
tightening, so that tends to be a good environment for the CAD
as well."
    The price of oil, one of Canada's major exports, rose as
political turmoil in Venezuela threatened to tighten crude
supply. U.S. crude oil futures        settled 1.1 percent higher
at $53.69 a barrel.             
    At 4:09 p.m. (2109 GMT), the Canadian dollar          was
trading 1 percent higher at 1.3221 to the greenback, or 75.64
U.S. cents, which was its biggest gain since September. The
currency touched its strongest level since Jan. 11 at 1.3218.
    For the week, the loonie rose 0.3 percent despite weak
domestic data that prompted some economists to project that
Canada's economy contracted in November.
                        
    Chances of another Bank of Canada interest rate hike by the
summer have fallen to about 30 percent from more than 50 percent
at the end of last week.           
    The U.S. dollar        fell to a 10-day low against a basket
of currencies as traders' focus shifted to the Federal Reserve's
policy meeting next week.              
    "We still do think that the Bank of Canada and the Fed will
likely have the opportunity to raise rates a little bit this
year but probably less than they thought they could three months
ago," Greenberg said.
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 4 Canadian cents
to yield 1.883 percent and the 10-year             falling 38
Canadian cents to yield 1.976 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent widened by 2.6 basis points to a spread of 72.5 basis
points in favor of the U.S. bond, its widest gap since Dec. 20.

 (Reporting by Fergal Smith
Editing by Paul Simao and Marguerita Choy)
  
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