May 24, 2019 / 1:32 PM / a month ago

CANADA FX DEBT-Loonie strengthens as investor risk aversion subsides

    * Canadian dollar rises 0.2% against the greenback
    * Price of U.S. oil increases 1.5%
    * Loonie on track to rise 0.1% for the week
    * Gap between 2- and 10-year yields hits narrowest in
5-months

    TORONTO, May 24 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Friday, recovering from a
six-day low the day before as investors dialed back fears of a
protracted trade war between the United States and China.
     Global stocks          rose, paring some of the previous
day's sharp decline, on cautious optimism after U.S. President
Donald Trump predicted a swift end to the tariff war with China.
            
    Canada runs a current account deficit and exports many
commodities, including oil, so its economy could be hurt by a
slowdown in the global flow of capital or trade.
    The price of oil rose after two sessions of losses, but
remained on track for its biggest weekly drop this year due to
rising inventories and concerns about an economic slowdown. U.S.
crude oil futures        were up 1.5% at $58.78 a barrel.
            
    At 9:08 a.m. (1308 GMT), the Canadian dollar          was
trading 0.2% higher at 1.3450 to the greenback, or 74.35 U.S.
cents. The currency, which on Wednesday touched its lowest since
May 17 at 1.3505, traded in a range of 1.3446 to 1.3481.
    For the week, the loonie was on track to rise 0.1%.
    The Bank of Canada is done raising interest rates until at
least the end of next year, with a serious risk of a cut by then
as policymakers become more wary of slowing growth and global
trade tensions, a Reuters poll showed on Friday.             
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            price flat to yield
1.586 percent and the 10-year             rising 10 Canadian
cents to yield 1.631%.
    The gap between Canada's 2- and 10-year yields narrowed by 1
basis point to a spread of 4.5 basis points in favor of the
longer-dated bond, its narrowest gap since Dec. 11. 
    Canada's Conservative Party Leader Andrew Scheer on Friday
plans to drop a previous pledge to balance the budget within two
years if elected, saying Prime Minister Justin Trudeau's Liberal
government has made it impossible to do so responsibly.
                

 (Reporting by Fergal Smith
Editing by Susan Thomas)
  
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