May 20, 2020 / 7:22 PM / 14 days ago

CANADA FX DEBT-Canadian dollar climbs as investors bet on economic recovery

 (Adds dealer quotes and details throughout; updates prices)
    * Canadian dollar rises 0.4% against the greenback
    * Canada's annual inflation rate fell by 0.2% in April
    * Price of U.S. oil increases 4.8%
    * Canadian bond yields mixed across a flatter curve

    By Fergal Smith
    TORONTO, May 20 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday as hopes for a global
economic recovery boosted equity markets and investors shrugged
off domestic data showing deflationary pressures.
    At 3:07 p.m. (1907 GMT), the Canadian dollar          was
trading 0.4% higher at 1.3883 to the greenback, or 72.03 U.S.
cents. The currency, which notched on Tuesday a near three-week
high at 1.3865, traded in a range of 1.3869 to 1.3960.
    "The Canadian dollar continues to benefit from a risk-on
environment and investor optimism, as stocks and commodities
have another solid day," said Michael Goshko, corporate risk
manager at Western Union Business Solutions.    
    U.S. stock markets rose, with the S&P 500 reaching a more
than two-month high, as signs of additional economic stimulus
raised hopes of a swift recovery from the coronavirus-driven
slump.             
    The price of oil, one of Canada's major exports, was
supported by signs of improving demand and a drawdown in U.S.
crude inventories. U.S. crude oil futures        settled 4.8%
higher at $33.49 a barrel. 
    Canada's annual inflation rate fell by 0.2% in April, the
first time it has hit negative territory since 2009, as the
coronavirus pandemic slashed energy prices, Statistics Canada
said.             
    "Contractionary inflation pressures are a given when the
economy comes to a complete standstill under lockdown measures,"
said Simon Harvey, FX market analyst for Monex Europe and Monex
Canada.     
    The Bank of Canada thinks there is likely to be downward
pressure on inflation once coronavirus-related shutdowns are
lifted, Deputy Governor Timothy Lane said, a sign the bank is in
no rush to raise near-record-low interest rates.             
    Since March, the central bank has slashed interest rates to
near zero and begun for the first time a large-scale bond-buying
program.
    Separate domestic data showed that wholesale trade decreased
by 2.2% in March from February, which was a smaller drop than
analysts had expected.                 
    Canadian government bond yields were mixed across a flatter
curve, with the 10-year             down 2.2 basis points at
0.570%.

 (Reporting by Fergal Smith
Editing by Nick Zieminski and Leslie Adler)
  
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