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C$ weakens as oil falls, current account deficit widens

 

The Canadian dollar weakened against its U.S. counterpart on Tuesday as oil prices fell and the country's current account deficit widened, while U.S. data helped boost the greenback.
   
Prices of oil, one of Canada's major exports, were pressured by concerns that production cuts by the world's big exporters may not be enough to drain a global glut that has depressed the market for almost three years.     
   
U.S. crude prices were down 0.94 percent at $49.33 a barrel. Canada's current account deficit widened more than expected in the first quarter of the year on an increase in imports of both good and services, data from Statistics Canada showed. The C$14.05 billion gap exceeded economists' expectations for a deficit of C$12 billion.             
   
The U.S. dollar nudged higher against a basket of major currencies as U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded. The data pointed to firming domestic demand early in the second quarter that could allow the Federal Reserve to raise interest rates next month.            
 
In early morning trading the Canadian dollar was trading at C$1.3490 to the greenback, or 74.13 U.S. cents, down 0.2 percent. The currency traded in a range of C$1.3450 to C$1.3493. On Thursday, the currency touched its strongest level in five weeks at C$1.3388 after the Bank of Canada struck a more upbeat tone than investors had expected the day before.
   
Canada is to release data on the country's gross domestic product on Wednesday, while the country's trade data for April is due on Friday. Economists forecast that the Canadian economy grew at a 3.9 percent annualized pace in the first quarter after a strong expansion in the second half of 2016.        
   
Canadian government bond prices were mixed across a steeper yield curve. The two-year was flat to yield 0.708 percent, and the 10-year declined 9 Canadian cents to yield 1.42 percent. On Monday, the 10-year yield had hit its lowest intraday level in six months at 1.399 percent.
 
Sterling rose against the dollar on Tuesday as investors shrugged off opinion polls showing British Prime Minister Theresa May's lead over the Labour opposition narrowing less than two weeks before a general election.
 
Polls last week showed the Labour Party catching up with May's Conservatives, shaving off almost half of the pound's 4 percent gain since the election announcement as investors pulled back some bets that May would win by a landslide majority.
 
But the belief May would win the election largely remained intact among investors as polls - while confirming the narrowing trend - still showed the Conservatives with a sizeable lead.
 
Minutes after an ICM poll showed May's Conservatives Party's lead narrowing to 12 points from 14 points last week, sterling rose nearly half a percent on the day to touch $1.2888 - its highest level since Friday.
 
Speculators continued to wind down record high bets against the pound in the week up to last Tuesday, data showed last week, reflecting a turn in sentiment on the British currency since May called the snap election mid-April.
 
But one week risk-reversals - which capture the date of the June 8 election - on sterling-dollar showed their highest bias towards weakness since April 10 on Tuesday, suggesting investors were again turning negative on the currency. Risk reversals are a gauge of the balance in the market between options betting on a currency rising or falling. The pound was 0.1 percent lower at 86.97 pence per euro.
 
Oil prices slid on Tuesday on concerns of a persistent global supply glut while U.S. and European political worries combined to subdue investor sentiment and weaken equity markets around the world.
 
The U.S. dollar fell against most currencies, weighed by a drop in U.S. Treasury yields after U.S. inflation data reinforced the notion that the Federal Reserve will only raise interest rates one more time in 2017.
 
Shares on Wall Street, in addition to Germany's DAX index and Britain's FTSE, are trading near record highs, which is keeping stocks from moving higher as political uncertainty picks up on both sides of the Atlantic.
 
There is a whiff of risk aversion about the equity markets in Japan, Europe and on Wall Street fell. Markets in China and Hong Kong were closed for holidays.
 
U.S. President Donald Trump is considering wider staff changes amid growing political fallout over U.S. probes into Russia and his presidential campaign. A senior aide to Trump resigned on Tuesday. The uneasiness created by the political situation just continues to leave the market troubled over where this is all headed.
 
Continued low interest rates and reasonably good earnings are positive, but for investors to commit new money there need to be some changes, such as tax proposals and healthcare, the Trump administration had promised, Meckler said. They do seem just really bogged down in political battles.
 
On Wall Street, the Dow Jones Industrial Average fell 36.22 points, or 0.17 percent, to 21,044.06. The S&P 500 lost 2.84 points, or 0.12 percent, to 2,412.98 and the Nasdaq Composite dropped 3.84 points, or 0.06 percent, to 6,206.35.
 
In Europe, the pan-regional FTSEurofirst 300 index of leading shares fell 0.23 percent to close at a provisional 1,533.49. MSCI's gauge of stocks across the globe shed 0.08 percent.
 
Signs that elections in Italy may come as early as September weighed on stocks and initially on the euro. British blue chips fell slightly less than two weeks before a general election that will shape talks for the country's exit from the European Union.
 
The U.S.dollar index was down 0.18 percent at 97.271, with the euro was up 0.2 percent at $1.1186. Against the safe-haven yen, the dollar dropped 0.4 percent to 110.79 yen.
 
Tuesday's U.S. economic data, while mixed, still backed the expectation that the Fed will raise interest rates next month, analysts said.
 
Benchmark Brent crude dropped to a low of $51.19 before recovering ground to trade down 86 cents at $51.44. The Organization of the Petroleum Exporting Countries and other oil producers, including Russia, agreed last week to keep a tight rein on supply until the end of the first quarter of 2018, nine months longer than originally planned.


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