June 13, 2018 / 1:36 PM / 2 months ago

CANADA FX DEBT-C$ recovers from 1-week low ahead of Fed rate decision

    * Canadian dollar at C$1.2994, or 76.96 U.S. cents
    * Price of U.S. oil falls 0.5 percent
    * Bond prices mixed across a flatter yield curve
    * Canada-U.S. 2-year spread touches widest in more than 11
years

    TORONTO, June 13 (Reuters) - The Canadian dollar edged
higher against its U.S. counterpart on Wednesday, with the
currency recovering from an earlier one-week low ahead of an
expected interest rate hike by the Federal Reserve.
    At 9:20 a.m. EDT (1320 GMT), the Canadian dollar         
was trading 0.1 percent higher at C$1.2994 to the greenback, or
76.96 U.S. cents. The currency touched its weakest level since
June 5 at C$1.3046.    
    Traders' expectations for a Fed rate hike on Wednesday were
reinforced by a stronger-than-forecast increase in U.S. producer
prices in May. It would be the second tightening this year by
the U.S. central bank.             
 
    The Bank of Canada has also raised interest rates once this
year. Chances of another hike at its next meeting in July have
eased to about 62 percent from more than 70 percent before a G7
summit in Canada at the weekend, data from the overnight index
swaps market showed.           
    U.S. President Donald Trump backed out of a joint communique
agreed by Group of Seven leaders that mentioned the need for
"free, fair and mutually beneficial" trade and the importance of
fighting protectionism.
    He also attacked Canadian Prime Minister Justin Trudeau in
their feud over trade.
    The spat comes amid slow-moving talks between Canada, the
United States and Mexico to modernize the North American Free
Trade Agreement (NAFTA). Canada sends about 75 percent of its
exports to the United States, so its economy could be hurt if
NAFTA were scrapped.
    U.S. crude oil futures        were down 0.5 percent at
$66.02 a barrel. Oil is one of Canada's major exports.
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            down 0.5 Canadian cent
to yield 1.905 percent and the 10-year             rising 6
Canadian cents to yield 2.291 percent.
    The gap between Canada's 2-year yield and its U.S.
counterpart widened by 0.5 basis point to a spread of -64.4
basis points, its widest since April 2007.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)
  
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