July 17, 2018 / 3:35 PM / 3 months ago

CANADA FX DEBT-C$ slides vs US dollar after Fed's Powell remarks

    * U.S. dollar up 0.3 percent at C$1.3176 
    * Canada factory sales rose 1.4 percent in May from April
    * Spread between the U.S. Canadian 10-year yields widens
    * Canadian government bond prices higher across yield curve

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    July 17 (Reuters) - The Canadian dollar dropped on Tuesday,
as the U.S. dollar rose across the board after Federal Reserve
Chairman Jerome Powell struck a bullish tone in prepared remarks
on the U.S. economy before a congressional committee.
    The Canadian currency touched session lows against the
greenback following release of Powell's testimony, nearing a
two-week trough hit last week.
    Powell, in testimony to the Senate Banking Committee, said
the U.S. economy is on the cusp of "several years" where the job
market remains strong and inflation stays around the Fed's 2
percent target. He discounted the risk that a trade war may
throw a global recovery off track.             
    "He struck a generally upbeat tone and signaled continued
'gradual' tightening, although he added a 'for now' to the
gradual tightening signal," said Jim O'Sullivan, chief U.S.
economist, at High Frequency Economics.
    "That raises the possibility of both a faster and a slower
pace, depending on economic and financial developments." 
    In late morning trading, the U.S. dollar was up 0.3 percent
against its Canadian counterpart at C$1.3184         . So far
this year, the Canadian dollar is down 4.8 percent against a
strong U.S. currency.
    The Canadian dollar was also lower against the euro, which
rose 0.1 percent to C$1.5405          . Sterling, however, fell
0.1 percent to C$1.7358          .
    The U.S. dollar, meanwhile, was up 0.3 percent against a
basket of six major currencies at 94.778       .
    Data showing Canada's factory sales rose 1.4 percent in May
from April trimmed the Canadian currency's decline versus the
greenback, but that had a brief impact.             
    The outlook for the Canadian dollar remained negative,
analysts said, even though the Bank of Canada raised interest
rates last week for the fourth time since July 2017, as the
market has yet to fully price in the impact of global trade
tensions.
    "Domestic rate expectations have softened modestly and yield
spreads have widened in a CAD-negative manner," said Eric
Theoret, currency strategist at Scotiabank in Toronto.
    The spread between the U.S. 10-year Treasury and Canadian
10-year yields               widened to nearly 75.29 basis
points on Tuesday.
    Meanwhile, Canadian government bond prices were higher 
across much of the yield curve in line with U.S. Treasuries.
    The two-year yield            was down at 1.915 percent,
from 1.929 percent late on Monday, while the 10-year            
slipped to 2.113 percent from Monday's 2.138 percent.

 (Reporting by Gertrude Chavez-Dreyfuss in New York
Editing by Nick Zieminski and Steve Orlofsky)
  
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