July 22, 2019 / 7:56 PM / a month ago

CANADA FX DEBT-C$ hits 2-week low as investors fret about wholesale miss

 (Adds portfolio manager quotes and details; updates prices)
    * Canadian wholesale trade decreases by 1.8% in May
    * Price of U.S. oil increases by 1.1%
    * Canadian bond prices rise across the yield curve

    By Levent Uslu
    TORONTO, July 22 (Reuters) - The Canadian dollar weakened to
a near two-week low against its U.S. counterpart on Monday as
domestic data showed a surprise drop in May wholesale trade,
supporting the view that the Bank of Canada could cut interest
rates this year.
    At 2:58 p.m. (1858 GMT), the Canadian dollar          was
trading 0.4% lower, at 1.3111 to the greenback, or 76.27 U.S.
cents. The currency, which touched its weakest intraday level
since July 10 at 1.3119, has pulled back from a near nine-month
high on Friday at 1.3016.
    "With weaker data potentially creating more expectation in
the market for easier policy from the Bank of Canada, I think
it's playing as a headwind to the CAD today" said Michael
Greenberg, a portfolio manager at Franklin Templeton Multi-Asset
solutions.
    Chances of a Bank of Canada interest rate cut this year have
climbed to more than 50% from about 20% before the Bank of
Canada's interest rate decision earlier this month.           
The central bank left its benchmark interest rate unchanged at
1.75% but highlighted the risks that trade wars posed to the
global economy.             
    Canadian wholesale trade fell 1.8% in May after five months
of gains, Statistics Canada said, as sales in the motor vehicle
and auto parts industries dropped, while the inventory-to-sales
ratio rose to its highest level since October 1995. Analysts had
predicted an increase of 0.5% for wholesale trade.             
    "Not only was the headline number quite weak versus
expectations for wholesale trade, some of the internals, such as
high inventory levels, are also a little bit concerning,"
Greenberg said.
    It was the second domestic economic report in as many
trading days that was weaker than expected. On Friday, data
showed a surprise decline in May retail sales.    
    Meanwhile, the price of oil, one of Canada's major exports
rose on Monday, on worries about possible supply disruptions in
the Middle East after Iran's seizure of a British tanker last
week. U.S. crude oil futures        settled 1.1% higher at
$56.22 a barrel.            
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 6.5 Canadian cents to
yield 1.431% and the 10-year             rising 27 Canadian
cents to yield 1.481%.
    The gap between Canada's 2-year yield and its U.S.
counterpart widened by 3.0 basis points to a spread of 38.3
basis points in favor of the U.S. bond, the biggest gap since
June 18.

 (Reporting by Levent Uslu; additional reporting by Fergal
Smith; editing by Jonathan Oatis and Leslie Adler)
  
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