Wider yield spreads push Canadian dollar to 11-week low
Canadian dollar weakens 0.3% against the greenback
Touches its weakest since Aug. 6 at 1.3849
Canada-U.S. 2-year spread trades at 18-year wide
10-year yield jumps 9.7 basis points to 3.224%
By Fergal Smith
TORONTO, Oct 21 (Reuters) -The Canadian dollar weakened to a near 11-week low against its U.S. counterpart on Monday, as the gap between U.S. and Canadian bond yields weighed on the currency ahead of an expected outsized interest rate cut by the Bank of Canada this week.
The loonie CAD= was trading 0.3% lower at 1.3835 to the U.S. dollar, or 72.28 U.S. cents, after touching its weakest intraday level since Aug. 6 at 1.3849.
"Wider spreads remain the primary drag on the CAD, as bond and swap spreads extend recent gains on firmer U.S. yields generally and ahead of the BoC policy decision Wednesday," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.
The gap between the Canadian 2-year yield and its U.S. equivalent was trading at roughly 99 basis points in favor of the U.S. note, the largest spread since August 2006.
"Markets have all but fully priced in a 50 bps (basis points) cut now, leaving the door wide open for the Bank to deliver," Osborne said.
A half-percentage-point move by the BoC on Wednesday would be the first reduction greater than 25 basis points in 15 years outside of the pandemic era. 0#BOCWATCH
The central bank has cut rates three times since June, in 25-basis-point steps, lowering the benchmark rate to 4.25%.
Speculators have raised their bearish bets on the Canadian dollar, U.S. Commodity Futures Trading Commission data showed on Friday. As of Oct. 15, net short positions had increased to 122,393 contracts from 89,151 in the prior week. 1090741NNET
The U.S. dollar added to recent gains against a basket of major currencies as U.S. bond yields climbed and investors positioned for the Nov. 5 presidential election.
Canadian bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was up 9.7 basis points at 3.224%.
Reporting by Fergal Smith; Editing by Richard Chang
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