CANADA FX DEBT-C$ dips against greenback; falls harder vs other G10 currencies

BY Reuters | ECONOMIC | 12/01/22 03:51 PM EST

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Canadian dollar weakens 0.2% against the greenback

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Canadian manufacturing PMI rises to 49.6 in November

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Investors cut Bank of Canada rate hike bets

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10-year yield falls to lowest since Aug. 18

By Fergal Smith

TORONTO, Dec 1 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as investors reduced bets on another oversized interest rate hike by the Bank of Canada next week and despite the greenback losing ground against some major peers.

The loonie was trading 0.2% lower at 1.3430 to the greenback, or 74.46 U.S. cents, giving back some of its gains from the previous day when Federal Reserve Chair Jerome Powell said that U.S. rate hikes could slow in December.

It was the only G10 currency to lose ground against the U.S. dollar. The greenback fell 1.1% against a basket of major currencies.

"In a weak U.S. dollar environment, the Canadian dollar often lags," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. "You get paid more in the U.S. (currency)."

Canadian money markets offer lower rates than in the United States, anticipating that the Federal Reserve will raise interest rates this cycle to a higher endpoint than the Bank of Canada.

Chances that the BoC would hike by 50 basis points rather than 25 basis points at a policy decision next Wednesday have fallen to roughly 10% from 30% since Powell's comments, money market data showed.

A slim majority of economists in a Reuters poll expect the larger move.

Flows related to Royal Bank of Canada's purchase of HSBC's business in Canada could also be weighing on the loonie, Chandler said.

The deal was announced on Tuesday at a purchase price of C$13.5 billion ($10 billion) in cash.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 49.6 in November from 48.8 in October. It has been below the 50 level that marks contraction in the sector since August.

The Canadian 10-year yield fell 9.3 basis points to 2.842%, its lowest level since Aug. 18. (Reporting by Fergal Smith Editing by Marguerita Choy and Diane Craft)

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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