May 24, 2017 / 3:28 PM / in 6 months

CANADA FX DEBT-C$ notches 1-month high as Bank of Canada turns more upbeat

 (Adds economist quotes and details on Bank of Canada rate
decision and U.S. crude inventory data and  updates prices)
    * Canadian dollar at C$1.3443, or 74.39 U.S. cents
    * Loonie touches its strongest since April 24 at C$1.3430
    * Bond prices mixed across a flatter yield curve
    * Chances of a rate hike this year more than double

    By Fergal Smith
    TORONTO, May 24 (Reuters) - Canada's dollar strengthened to
a one-month high against its U.S. counterpart on Wednesday after
the Bank of Canada was more upbeat about the economy than some
investors expected and as major oil producers looked set to
possibly extend production cuts.
    The Bank of Canada held interest rates steady at 0.50
percent, as expected. It reiterated its position that excess
capacity remains in the economy and wage growth is subdued, but
noted strong spending by Canadians along with a housing boom and
job growth.             
    "It's probably a bit more positive than many would have
expected," said Doug Porter, chief economist at BMO Capital
Markets.
    "We're slowly but surely moving towards the day when the
Bank (of Canada) might actually consider raising interest
rates."
    Chances of an interest rate hike this year more than doubled
from before the announcement to one-in-four, data from the
overnight index swaps market showed.               
    Prices of oil, one of Canada's major exports, edged higher
after U.S. data showed a bigger than expected draw in crude
inventories. U.S. crude        prices were up 0.08 percent to
$51.51 a barrel.
    Investors waited for news from Vienna, where ministers from
the Organization of the Petroleum Exporting Countries and other
nations were discussing whether to extend production cuts into
the first quarter of 2018.             
    At 11:04 a.m. ET (1504 GMT), the Canadian dollar         
was trading at C$1.3443 to the greenback, or 74.39 U.S. cents,
up 0.5 percent.
    The currency's weakest level was C$1.3540, while it touched
its strongest since April 24 at C$1.3430.
    The loonie has recovered from a 14-month low of C$1.3793 set
earlier this month, helped by a rally in oil prices and broader
losses for the U.S. dollar amid diminishing expectations of a
promised fiscal boost to the U.S. economy from President Donald
Trump.
    Canadian government bond prices were mixed across a flatter
yield curve. The two-year            dipped 3 Canadian cents to
yield 0.719 percent, while the 10-year             rose 8
Canadian cents to yield 1.505 percent.
    The gap between the 2-year yield and the 10-year yield
narrowed by 2.5 basis points to a spread of 78.6 basis points,
as shorter dated maturities underperformed on the Bank of
Canada's more upbeat tone.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Tom
Brown)
  
 

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