February 1, 2019 / 9:47 PM / 7 months ago

CANADA FX DEBT-C$ rises to 3-month high as oil rallies, yield spreads narrow

 (New throughout, updates prices, market activity and comments)
    * Canadian dollar rises 0.3 percent against the greenback
    * Loonie touches its strongest since Nov. 7 at 1.3069
    * Price of U.S. oil rises 2.7 percent  
    * Canadian bond prices fall across the yield curve
    * Canada-U.S. 10-year spread narrows by 2.6 basis points

    By Fergal Smith
    TORONTO, Feb 1 (Reuters) - The Canadian dollar strengthened
on Friday to its highest in nearly three months against the
greenback as oil prices rose and as the gap narrowed between
Canadian and U.S. bond yields despite U.S. data showing
employers hired the most workers in 11 months.
    At 4:31 p.m. (2131 GMT), the Canadian dollar          was
trading 0.3 percent higher at 1.3088 to the greenback, or 76.41
U.S. cents. The currency, which climbed 3.9 percent in January,
touched its strongest level intraday since Nov. 7 at 1.3069.
    For the week, the loonie rose 1 percent.
    The "big drivers" for the Canadian dollar have been narrower
yield spreads and higher oil prices, said Amo Sahota, a director
at Klarity FX in San Francisco.
    U.S. crude oil futures        settled 2.7 percent higher on
Friday, helped by upbeat U.S. jobs data and signs that U.S.
sanctions on Venezuelan exports have helped tighten supply.
            
    U.S. job growth surged in January, pointing to strength in
the economy. Still, other data hinting at a darkening outlook
have the Federal Reserve cautious about further interest rate
hikes this year.                 
    The spread between Canada's 10-year yield and its U.S.
equivalent narrowed on Friday by 2.6 basis points to a spread of
73 basis points in favor of the U.S. bond, its narrowest since
Jan. 7.
    The narrower spread came as hopes rose of progress on trade
talks between the United States and China.
    The U.S.-China trade talks this week had a "good vibe" with
much work remaining, White House economic adviser Larry Kudlow
said on Friday as China followed through on a pledge to increase
soybean purchases with a 1 million tonne order.             
     Canada is running a current account deficit as well as
being a major commodities producer, so its economy could benefit
from a pickup in the global flow of trade.        
    Data from the U.S. Commodity Futures Trading Commission,
which had been delayed during a partial shutdown of the U.S.
government, and Reuters calculations showed that speculators
raised their bearish bets on the Canadian dollar in December to
the highest in about five months.
    As of Dec. 24, net short positions had jumped to 44,692
contracts from 7,457 a week earlier.    
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 11.5 Canadian cents to
yield 1.833 percent and the 10-year             falling 69
Canadian cents to yield 1.960 percent.

 (Reporting by Fergal Smith
Editing by Phil Berlowitz and David Gregorio)
  
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