May 23, 2018 / 8:40 PM / 3 months ago

CANADA FX DEBT-C$ pares decline after dovish Fed minutes, NAFTA clues

 (Adds strategist quotes and details on activity; updates
prices)
    * Canadian dollar at C$1.2832, or 77.93 U.S. cents
    * Loonie touches its weakest since May 15 at C$1.2916
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, May 23 (Reuters) - After hitting a one-week low,
the Canadian dollar pared its losses as investors weighed
minutes from the last Federal Reserve meeting and prospects for
progress on NAFTA trade talks.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.1 percent lower at C$1.2832 to the greenback, or 77.93
U.S. cents. The currency had hit its weakest intraday level
since May 15 at C$1.2916.
    "There have been some comments on NAFTA, on the auto sector,
which suggest that things continue to move along there," said
Shaun Osborne, chief currency strategist at Scotiabank.
    President Donald Trump, who has repeatedly pledged to revive
American manufacturing, said that "big news" was coming that
would be welcomed by U.S. auto workers, and he suggested it was
somehow linked to North American Free Trade Agreement talks.
                
    Canada sends 75 percent of its exports to the United States
so its economy could benefit if a deal is reached.
    The U.S. dollar        climbed against a basket of major
currencies, but the rally stalled after the Fed suggested higher
inflation may not result in faster interest rate hikes.
            
    "The Fed minutes were viewed somewhat dovishly," Osborne
said. "We have seen U.S. yields pull back a bit."               
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 6.5 Canadian cents to yield 2.023 percent and
the 10-year             climbed 67 Canadian cents to yield 2.439
percent.
    U.S. crude oil futures        settled 0.5 percent lower at
C$71.84 a barrel, pressured by an unexpected build in U.S. crude
and gasoline inventories despite strong demand.             
    Oil is one of Canada's major exports.    
    Lending to small Canadian businesses picked up in March as
gains were seen in the manufacturing and construction
industries, boding well for stronger economic growth in the
coming months.              

 (Reporting by Fergal Smith; editing by Jonathan Oatis and
Cynthia Osterman)
  
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