December 28, 2017 / 9:43 PM / 6 months ago

CANADA FX DEBT-C$ reaches 2-month high as greenback slips, oil climbs

 (Adds economist quote and details on market activity and
background; updates prices)
    * Canadian dollar at C$1.2572, or 79.54 U.S. cents
    * Loonie touches strongest since Oct. 20 at C$1.2567
    * Bond prices lower across the yield curve
    * Canada-US 10-yr spread hits narrowest since Nov. 16

    By Fergal Smith
    TORONTO, Dec 28 (Reuters) - The Canadian dollar strengthened
to a two-month high against its U.S. counterpart on Wednesday,
as the greenback broadly fell and oil prices rose.
    Data before the Christmas break showing an acceleration in
domestic inflation has also helped underpin the loonie.
    At 4 p.m. ET (2100 GMT), the Canadian dollar CAD=D4 was
trading at C$1.2572 to the greenback, or 79.54 U.S. cents, up
0.7 percent.
    The currency, which had been trading in a range roughly
between 1.26 and 1.29 over the past two months, touched its
strongest level since Oct. 20 at C$1.2567.
    The U.S. dollar        fell to a one-month low against a
basket of major currencies.             
    Investors have been weighing prospects for global central
banks to tighten monetary conditions, lessening the divergence
between the U.S. Federal Reserve's policy and the rest of the
world.             
    The Bank of Canada raised interest rates in July, and then
again in September, for the first time in seven years. Money
markets expect three further hikes in 2018, which is more than
is expected from the Fed.                     
    "Last week you had some positive reports on CPI and retail
sales that raised the odds of a slightly earlier move from the
Bank of Canada," said Josh Nye, economist at Royal Bank of
Canada. 
    The price of oil, one of Canada's major exports, remained
near 2-1/2-year highs after data showed strong demand for crude
imports in China and on increased U.S. refining activity that
drew more crude from inventories.             
    U.S. crude futures        settled 0.3 percent higher at
$59.84 a barrel.
    Canadian government bond prices were lower across the yield 
curve in sympathy with U.S. Treasuries. The two-year           
fell 5.5 Canadian cents to yield 1.693 percent and the 10-year
            declined 42 Canadian cents to yield 2.031 percent.
    The gap between Canada's 10-year yield and its U.S.
counterpart narrowed by 3.5 basis points to a spread of -39.9
basis points, its narrowest since Nov. 16.

 (Reporting by Fergal Smith; Editing by Frances Kerry and Sandra
Maler)
  
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