May 31, 2018 / 2:11 PM / 25 days ago

CANADA FX DEBT-C$ weakens as economy slows, U.S. moves on tariffs

    * Canadian dollar at C$1.2961, or 77.15 U.S. cents
    * Loonie touched its strongest since May 23 at C$1.2819
    * U.S. oil price falls 1.3 percent
    * Bond prices higher across the yield curve

    TORONTO, May 31 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday, reversing from an
earlier one-week low, after data showed weaker-than-expected
growth in the domestic economy and as investors weighed the
prospect of U.S. trade tariffs.
    At 9:57 a.m. EDT (2000 GMT), the Canadian dollar         
was trading 0.7 percent lower at C$1.2961 to the greenback, or
77.15 U.S. cents.
    The currency's weakest level of the session was C$1.2978,
while it touched its strongest intraday since May 23 at
C$1.2819.
    Canada's economy grew at its slowest pace in nearly two
years in the first quarter amid cooler exports and a weaker
housing sector, Statistics Canada said. Gross domestic product
grew in the first three months of 2018 at an annualized rate of
1.3 percent, short of expectations for 1.8 percent.
    "I think the economy can still sustain a rate hike in July
but it is questionable how quickly after that the Bank (of
Canada) will be able to raise rates again," said Royce Mendes,
senior economist at CIBC Capital Markets.
    Investors had raised expectations for a rate hike as soon as
July after the Bank of Canada was more hawkish than expected in
a policy statement on Wednesday.
    Chances of a July rate hike dipped on Thursday to 63 percent
from about 70 percent before the data, the overnight index swaps
market showed.
    The United States said it was moving ahead with tariffs on
aluminum and steel imports from Canada, Mexico and the European
Union, ending a two-month exemption and potentially setting the
stage for a trade war with some of America's top allies.
            
    U.S. crude oil futures        fell 1.3 percent to C$67.31.
Oil is one of Canada's major exports.
    Canadian government bond prices were higher across the yield
curve. The 10-year             rose 26 Canadian cents to yield
2.236 percent.
    On Tuesday, the 10-year yield touched its lowest in nearly
seven weeks since April 11 at 2.165 percent.    

 (Reporting by Fergal Smith; Editing by Bernadette Baum)
  
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