July 11, 2017 / 9:14 PM / 14 days ago

CANADA FX DEBT-C$ eases ahead of Bank of Canada rate decision

3 Min Read

    * Canadian dollar at C$1.2923, or 77.38 U.S. cents
    * Bond prices higher across the yield curve
    * Bank of Canada interest rate decision awaited on Wednesday

    By Solarina Ho
    TORONTO, July 11 (Reuters) - The Canadian dollar retreated
on Tuesday against its U.S. counterpart ahead of an expected
interest rate hike by the Bank of Canada on Wednesday.
    The central bank rate decision was the main focus for the
Canadian dollar, which softened even as prices of oil, one of
Canada's major exports, rose and the U.S. dollar fell against a
basket of major currencies.      
    At 4:00 p.m. EDT (2000 GMT), the Canadian dollar         
was trading at C$1.2923 to the greenback, or 77.38 U.S. cents,
down 0.2 percent.
    The currency traded in a range of C$1.2886 to C$1.2944,
still within reach of a 10-month high at C$1.2860, reached on
Friday. The currency had rallied following
stronger-than-expected domestic jobs data, which bolstered
expectations of a rate increase on Wednesday.
    "It's lost a little bit of ground today, but we're really
positioning ourselves in front of the imminent rate hike
tomorrow," said Rahim Madhavji, President at
KnightsbridgeFX.com, but he added that the Bank of Canada was
"very far away" from going on a long-term rate hike cycle. 
    "I think it's just a short term blip ... much of it is
priced into the market, and I think we'll oscillate around this
level for the rest of the year."
    Madhavji said overall weakness in oil prices and uncertainty
around the North American Free Trade Agreement will keep the
loonie under some pressure this year. He said the Bank of Canada
will likely take more action in 2018.
    Chances of a hike on Wednesday sit just under 88 percent,
according to data from the overnight index swaps market. A
nearly 80-percent chance of a second hike has been implied by
December.           
    After years of being warned that borrowing costs would have
to rise eventually, debt-laden Canadians may be about to face a
reckoning if the Bank of Canada hikes rates.                    
    Canadian government bond prices were higher across the yield
curve. The two-year            rose 6.5 Canadian cents to yield
1.124 percent and the 10-year             climbed 29 Canadian
cents to yield 1.860 percent.
    The 2-year yield fell 3.1 basis further below its U.S.
equivalent to a spread of -25.82 basis points. The spread had
touched its narrowest on Tuesday since October at -22.7 basis
points.
    Canadian housing starts rose more than expected in June as
construction intentions in and around Toronto remained strong
while Vancouver trended downwards, data from the Canada Mortgage
and Housing Corporation showed.             

 (Reporting by Solarina Ho and Fergal Smith; Editing by Sandra
Maler)
  
 

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