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CANADA FX DEBT-C$ pulls back from 5-week high as oil prices slide
May 25, 2017 / 9:00 PM / 7 months ago

CANADA FX DEBT-C$ pulls back from 5-week high as oil prices slide

 (Adds dealer comment, updates prices)
    * Canadian dollar at C$1.3479, or 74.19 U.S. cents
    * Loonie touched strongest since April 19 before OPEC news
    * Bond prices mixed across a flatter yield curve
    * 2-year spread vs Treasuries hits narrowest in 3 weeks

    By Alastair Sharp
    TORONTO, May 25 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, pulling back from a
five-week high as oil prices sunk on disappointment that an
OPEC-led extension of production cuts did not go further.
    The currency touched its strongest level since April 19
early in the session but reversed course after news out of the
Vienna meeting of the Organization of the Petroleum Exporting
Countries and some non-OPEC producers that existing production
cuts would be extended to March 2018.             
    "We've had a sharp reversal after the OPEC news this
morning," said Blake Jespersen, managing director for foreign
exchange sales at BMO Capital Markets. "I think the market was
maybe hoping for an extended cut or broader support from more
participants." 
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3479 to the greenback, or 74.19 U.S. cents, down
0.5 percent.
    The currency's weakest level of the session was C$1.3494,
while it touched its strongest since April 19 at C$1.3388.
    Oil prices tumbled 5 percent, the sharpest daily percentage
slide in crude prices since early March.      
    Jespersen said the decline in the value of the loonie, as
Canada's currency is colloquially known, had likely capped its
sharp rally since early May that had veered into overbought
territory on a technical basis.
    With the OPEC deal out of the way, attention would turn back
to interest rate differentials, he said.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 1 basis points to a spread of -58 basis
points, near its smallest gap since May 1. Shorter-dated
Canadian bonds have increasingly underperformed since
Wednesday's rate decision by the Bank of Canada.
    While holding rates steady, the Canadian central bank was
more upbeat about the economy than some investors had expected,
dropping a reference to the excess capacity in the economy being
"material" and noting strong spending by Canadians along with a
housing boom and job growth.             
    Dallas Federal Reserve Bank President Robert Kaplan said
late on Wednesday that he felt "very strongly" that U.S. trade
relationships with Canada and Mexico help U.S. competitiveness.
The remarks came as U.S. President Donald Trump looks at
renegotiating the North American Free Trade Agreement.
            
    Canadian government bond prices were mixed across a flatter
yield curve. The two-year            dipped half a Canadian cent
to yield 0.718 percent, and the 10-year             rose 16
Canadian cents to yield 1.461 percent.

 (Additional reporting by Fergal Smith; Editing by Lisa Von Ahn
and Bill Trott)
  
 

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