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CANADA FX DEBT-C$ posts biggest weekly decline since January as curve inverts

CANADA FX DEBT-C$ posts biggest weekly decline since January as curve inverts

reuters.com · 06/10/2022 15:14
CANADA FX DEBT-C$ posts biggest weekly decline since January as curve inverts

Adds strategist quotes and details throughout; updates prices

Canadian dollar weakens 0.5% against the greenback

Touches weakest since May 26 at 1.2812

Canadian economy adds 40,000 jobs in May

Canada's 2-year yield climbs above 30-year yield

By Fergal Smith

- The Canadian dollar fell to a two-week low against its broadly stronger U.S. counterpart on Friday as investors weighed economic data that could support additional aggressive interest rate hikes by the Bank of Canada and the Federal Reserve.

The loonie CAD= was trading 0.5% lower at 1.2760 to the greenback, or 78.37 U.S. cents, after touching its weakest since May 26 at 1.2812. For the week, it was down 1.3%, its biggest weekly decline since January.

"The CAD is ending the week on the defensive," strategists at Scotiabank, including Shaun Osborne, said in a note. "The slide reflects a broader rebound in the USD amid signs of persistent inflationary pressures."

The U.S. dollar .DXY jumped against a basket of major currencies, equity markets globally .WORLD tumbled and the price of oil CLc1, one of Canada's major exports, settled 0.7% lower as U.S. consumer prices accelerated in May, cementing bets for a second consecutive half-percentage-point interest rate hike by the Fed at a policy decision next Wednesday. nL1N2XW25Z

Canada's central bank has also been hiking in half-percentage-point increments.

Money markets see about a 60% chance that it would announce an even larger move at the July 13 policy announcement after data showed the Canadian economy adding 40,000 jobs in May, more jobs than expected, and the unemployment rate hitting a record low at 5.1%. nL1N2XX10C

The decline for the loonie came as Canada's 2-year yield climbed above the 30-year yield for the first time since February 2020. An inverted curve could reflect investor expectations for slower economic growth but also the potential for reduced supply of Canadian long-term debt.

On Thursday, the Government of Canada canceled an ultra-long bond issue planned for next week, saying the decision reflects the country's declining borrowing needs.

Canada's 10-year yield on Friday rose 11.2 basis points to 3.345%, tracking the move in U.S. Treasuries.

(Reporting by Fergal Smith; editing by Jonathan Oatis and Alex Richardson)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))