May 13, 2019 / 8:21 PM / 14 days ago

CANADA FX DEBT-Loonie retreats, curve inverts as global trade fears grow

 (Adds dealer quotes and details throughout, updates prices)
    * Canadian dollar falls 0.4% against the greenback
    * Price of U.S. oil decreases 1%
    * Canadian bond prices rise across a flatter yield curve
    * 10-year yield drops below yield on 3-month T-bill

    By Fergal Smith
    TORONTO, May 13 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Monday as investors worried
about the damage to the global economy from an escalating trade
war between the United States and China.
    Wall Street took a pounding after Beijing defied Washington
by announcing retaliatory tariffs on $60 billion in U.S. goods
in the latest salvo in the two countries' increasingly
belligerent trade dispute, sending investors fleeing equities
for less risky assets.                     
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could be hurt by a
slowdown in the global flow of capital or trade.
    "It is a decidedly risk-off tone in the markets," said Scott
Lampard, head of global markets at HSBC Bank Canada. "The record
jobs number from Canada certainly seems to be a distant memory
right now."
    Data on Friday showed that the Canadian economy added
106,500 jobs in April, providing a timely boost for Prime
Minister Justin Trudeau, who trails in opinion polls less than
half a year before the October general election.             
    Still, Trudeau's strategy to prioritize spending on the
middle class at the beginning of his four-year term will not
keep growth humming ahead of the election, some economists said.
            
    Oil prices fell as the negative turn in the U.S.-Chinese
trade talks spooked investors, who had sent oil higher in early
trade on concerns about reports of sabotage attacks on tankers
in the Middle East that could disrupt supplies.             
    U.S. crude oil futures        settled 1 percent lower at
$61.04 a barrel.
    At 3:49 p.m. (1949 GMT), the Canadian dollar          was
trading 0.4% lower at 1.3470 to the greenback, or 74.24 U.S.
cents. The currency, which on Friday touched a nine-day high at
1.3381, traded in a range of 1.3420 to 1.3483.
    Speculators have cut their bearish bets on the Canadian
dollar for the third straight week, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
Friday.
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The 10-year
            rose 68 Canadian cents to yield 1.661%.
    The 10-year yield dropped 7.2 basis points more than the
yield on the 3-month T-bill to leave a spread of 1.4 basis
points in favor of the shorter-dated maturity, as the curve
inverted.
    Canada's inflation report for April is due on Wednesday.

 (Reporting by Fergal Smith; Editing by Nick Zieminski ; Editing
by Peter Cooney; Editing by Peter Cooney)
  
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