CANADA FX DEBT-C$ gains as BoC survey bolsters bets for supersized rate hike

BY Reuters | ECONOMIC | 07/04/22 03:34 PM EDT
    (Adds economist quote and details throughout; updates prices)
    * Canadian dollar strengthens 0.2% against greenback
    * Loonie trades in a range of 1.2838 to 1.2902
    * Price of U.S. oil rises 2.1%
    * Canadian 10-year yield touches four-week low

    By Fergal Smith
    TORONTO, July 4 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Monday, as oil prices rose and a
Bank of Canada survey showed a surge in inflation expectations
that bolstered bets for a supersized interest rate increase next
week by the central bank.
    Consumer inflation expectations hit fresh highs in the
short-term and were up "significantly" over the long-term, a BoC
survey showed.
    "The persistence of rising inflation expectations only
reinforces our expectations for a 75 bp (basis point) hike at
next week's policy meeting," Shelly Kaushik, an economist at BMO
Capital Markets, said in a note.
    Money markets expect the BoC to raise its benchmark rate by
three-quarters of a percentage point at its next policy decision
on July 13, which would be its biggest hike in 24 years.
    Separate data showed that Canadian manufacturing activity
lost some momentum in June as inflation pressures and material
shortages held back production and firms became less optimistic
about future output.
    The S&P Global Canada Manufacturing Purchasing Managers'
Index fell to a seasonally adjusted 54.6, its lowest level since
January 2021, from 56.8 in May.
    The price of oil, one of Canada's major exports, rose as
concerns of tight supply offset global recession fears.

    U.S. crude        was up 2.1% at $110.66 a barrel, while
world stocks advanced in trade thinned by the Fourth of July
holiday in the United States.
    The Canadian dollar        was trading 0.2% higher at 1.2853
to the greenback, or 77.80 U.S. cents, after moving in a range
of 1.2838 to 1.2902.
    Speculators have raised their bullish bets on the Canadian
dollar, data from the U.S. Commodity Futures Trading Commission
showed on Friday.
    Canadian bond yields were lower across a flatter curve on
Monday. The 10-year             touched its lowest since June 7
at 3.162% before recovering slightly to 3.177%, down 4.8 basis
points on the day.

 (Reporting by Fergal Smith
Editing by Chizu Nomiyama and Paul Simao)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article