World Economy

C$ Weakens as Oil Retreats, Export Volumes Fall

C$ Weakens as Oil Retreats, Export Volumes FallC$ Weakens as Oil Retreats, Export Volumes Fall

The Canadian dollar weakened against its US counterpart on Tuesday as oil fell and domestic trade data showed a disappointing drop in export volumes.

Canada posted a smaller-than-expected trade deficit of C$1.13 billion ($850 million) in October, down from a record C$4.38 billion shortfall in September, when a one-time shipment of oil machinery boosted imports, Statistics Canada data showed, Reuters reported.

“What the Bank of Canada will pay more attention to is the seven-tenths decline in export volumes on the month,” said Scotiabank Vice President Derek Holt. “That plays to the concern that the (third-quarter) export surge was transitory.”

Prices fell for oil, one of Canada’s major exports, as data showed output rose for most major producers despite plans for curbs by the Organization of the Petroleum Exporting Countries and Russia. US crude prices were down 2.39% at $50.55 a barrel. 

At 1420 GMT, the Canadian dollar was trading at C$1.330 to the greenback, or 75.17 US cents, weaker than Monday’s close of C$1.327, or 75.32 US cents. The currency’s strongest level of the session was C$1.325, while its weakest was C$1.331.

On Monday, the loonie reached a more than six-week peak against the greenback at C$1.323, helped by recent stronger-than-expected domestic data and the agreement by major oil producers to cut output.

Still, the Canadian dollar is expected to weaken over the coming months as likely monetary policy divergence overshadows higher oil prices, a Reuters poll found. 

The Bank of Canada is widely expected to hold interest rates at 0.50% on Wednesday, with investors focused on the policy statement for any mention of how the US election of Donald Trump could affect the Canadian and US economies.

The implied probability of a rate hike by mid-2017 was nearly 20%, overnight index swaps data showed, little changed from before the trade data. Just one month ago, there was a 30% probability of a rate cut. 

Canadian government bond prices were slightly higher across the yield curve, with the two-year up 2.5 Canadian cents to yield 0.729% and the benchmark 10-year  rising seven Canadian cents to yield 1.62%.

On Thursday, the 10-year yield touched its highest in more than one year at 1.712%.

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