December 4, 2019 / 9:00 PM / 6 days ago

CANADA FX DEBT-C$ posts biggest gain in three months as rate cut bets tumble

 (Adds strategist quotes and details throughout; updates prices)
    * Loonie touches its strongest level since Nov. 19 at 1.3193
    * Bank of Canada leaves policy rate on hold at 1.75%
    * Price of U.S. oil increases by 4.1%
    * Canada's 2-year yield moves further above U.S. equivalent

    By Fergal Smith
    TORONTO, Dec 4 (Reuters) - The Canadian dollar strengthened
to a two-week high against the greenback on Wednesday as
investors cut bets that the Bank of Canada would ease interest
rates over the coming months after upbeat comments by the
central bank on the global economy.
    Canada's central bank held its overnight rate at 1.75% as
expected and cited early signs the global economy was
stabilizing, while stressing that uncertainty caused by trade
wars remained the main threat to its outlook.             
    "The Bank of Canada struck a more optimistic tone in their
last monetary policy decision in 2019," said Simon Harvey, FX
market analyst for Monex Europe and Monex Canada. "The market
implied probability of an insurance rate cut fell dramatically."
    Chances of an interest rate cut by March fell to less than
20% from 35% before the rate decision, data from the overnight
index swaps market indicated.           
    At 3:44 p.m. (2044 GMT), the Canadian dollar          was
trading 0.8% higher at 1.3194 to the greenback, or 75.79 U.S.
cents, its biggest gain since Sept. 4. The currency touched its
strongest intraday level since Nov. 19 at 1.3193.
    The gains for the loonie came as U.S. President Donald Trump
said that talks with China on an interim trade deal were going
"very well," boosting Wall Street.             
    Canada is a major exporter of commodities, including oil, so
its economy could benefit from an improved outlook for global
trade.
    U.S. crude oil futures        jumped 4.1% to $58.40 a barrel
on expectations that OPEC and allied producers would extend
production curbs, and as U.S. government data showed a large
drop in domestic crude stockpiles.                 
    Domestic data showed that labor productivity grew by 0.2% in
the third quarter, as both hours worked and business output
slowed, Statistics Canada said.             
    Canada's trade report for October is due on Thursday and the
November jobs report is due on Friday.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 15.5 Canadian cents to
yield 1.638% and the 10-year             falling 89 Canadian
cents to yield 1.545%.
    Canada's 2-year yield moved 3.6 basis points further above
the U.S. equivalent to a spread of 5.8 basis points in favor of
the Canadian bond.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky, Nick
Zieminski and Jonathan Oatis)
  
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