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Canadian dollar slides as rate cut bets climb on weaker business sentiment

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04/15/2019 | 04:18pm EDT
Illustration photo of a Canada Dollar note

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday, as domestic data showing softer business sentiment triggered increased bets on a Bank of Canada interest rate cut this year.

Canada's weak energy sector, a housing slowdown and global trade tensions are weighing on business sentiment, which has turned slightly negative, according to a Bank of Canada quarterly survey.

The weaker survey "strongly suggests the BoC will be on hold through the rest of this year, though the risks are tilted toward a cut, should a negative shock hit," Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, said in a note.

Chances of a rate cut by December doubled to about 40% after the data, the overnight index swaps market indicated.

Adding to headwinds for the loonie, the price of oil, one of Canada's major exports, fell after Russia's finance minister said Russia and OPEC may decide to boost production to fight for market share with the United States, where output remains at record highs.

U.S. crude oil futures settled 0.8% lower at $63.40 a barrel.

At 3:44 p.m. (1944 GMT), the Canadian dollar was trading 0.4% lower at 1.3372 to the greenback, or 74.78 U.S. cents. The currency, which rose 0.5% last week, traded in a range of 1.3298 to 1.3390.

Canadian home sales rose 0.9% month-over-month in March, edging higher after a sharp drop in the previous month, the Canadian Real Estate Association said on Monday.

Canadian government bond prices were higher across the yield curve, with the two-year up 6.5 Canadian cents to yield 1.603% and the 10-year rising 28 Canadian cents to yield 1.750%.

The gap between Canada's two-year yield and its U.S. equivalent widened by 2.6 basis points to a spread of 78.6 basis points in favor of the U.S. bond.

(Reporting by Fergal Smith; Editing by Susan Thomas and Peter Cooney)

By Fergal Smith

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