C$ steadies ahead of the expected Fed rate cut

Parvez Jabri July 31, 2019

TORONTO: The Canadian dollar was little changed on Tuesday against its US counterpart, trading in a narrow range, as the currency lacked direction ahead of the expected Federal Reserve interest rate cut this week.

Money markets are convinced the Fed will cut the key benchmark rate by 25 basis points, but it remains to be seen whether this is going to be a one-off cut or whether more cuts will follow.

The Bank of Canada left its benchmark interest rate unchanged at 1.75% this month but highlighted the risks that trade wars pose to the global economy.

Canada’s gross domestic product data for May is due on Wednesday, with a Reuters poll forecasting a 0.1% increase, which could help guide expectations for the direction of interest rates.

“It (the reason of flatness in the loonie) is a bit of uncertainty with respect to what the Fed statement is going to look like tomorrow, and again we do have important economic data coming out of Canada as well,” said Bipan Rai, executive director and North America head of FX strategy at CIBC capital markets.

At 2:34 p.m. (1834 GMT), the Canadian dollar was trading nearly unchanged at 1.3159 to the greenback, or 75.99 US cents. The currency traded in a range of 1.3152 to 1.3191.

Meanwhile, the price of oil, one of Canada’s major exports, rose on optimism the US Federal Reserve will cut interest rates this week for the first time in more than 10 years, boosting demand expectations in the world’s biggest oil user.

US crude oil futures settled 2.1% up at $58.05 a barrel.

Canadian government bond prices were lower across the yield curve, with the two-year down 5.5 Canadian cents to yield 1.518% and the 10-year falling 12 Canadian cents to yield 1.489%.

The gap between Canada’s 10-year yield and its US equivalent widened by 0.3 basis point to a spread of 57.6 basis points in favor of the US bond, the widest gap since June 21.

Copyright Reuters, 2019

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