CANADA FX DEBT-C$ hits 4-week low; analysts suspect M&A flows

BY Reuters | ECONOMIC | 11/29/22 03:40 PM EST

(Adds analyst quotes and details throughout; updates prices)

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Canadian dollar falls 0.7% against the greenback

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Touches its weakest since Nov. 4 at 1.3645

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Canada's third-quarter GDP increases 2.9%

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Canadian bond yields rise across curve

By Fergal Smith

TORONTO, Nov 29 (Reuters) - The Canadian dollar fell to its lowest level in nearly four weeks against the greenback on Tuesday, a move that analysts said was likely transaction-driven and despite data showing that Canada's economy grew faster-than-expected in the third quarter.

The loonie was trading 0.7% lower at 1.3589 to the greenback, or 73.59 U.S. cents, the biggest decline among G10 currencies. It touched its weakest level since Nov. 4 at 1.3645.

"The Canadian dollar was inexplicably weak today," said Adam Button, chief currency analyst at ForexLive. "I assume a large corporate or possibly M&A deal was going through the market."

The move coincided with HSBC (HSBC) agreeing to sell its business in Canada to Royal Bank of Canada (RY) for C$13.5 billion ($10 billion) in cash.

Canada's economy grew at an annualized rate of 2.9% in the third quarter, above analysts' expectations, driven by exports and non-residential structures, Statistics Canada data showed.

The details were less bullish, with final domestic demand falling 0.6%, while a preliminary estimate showed that October's GDP was unchanged after the economy grew by 0.1% in September compared to August.

Money markets continued to expect a 25 basis point interest rate hike by the Bank of Canada at a policy decision next week, while seeing a 25% chance of a larger move.

The price of oil, one of Canada's major exports, rose on hopes for a relaxation of China's strict COVID-19 controls. U.S. crude prices settled 1.2% higher at $78.20 a barrel.

Canadian government bond yields were higher across the curve, with the 10-year up 5.5 basis points at 2.998%. (Reporting by Fergal Smith; Editing by Bernadette Baum and Grant McCool)

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.

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