CANADA FX DEBT-C$ strengthens to 2-week high as oil rallies

Mon Jun 6, 2016 9:52am EDT
 
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* Canadian dollar at C$1.2912, or 77.45 U.S. cents
    * Bond prices lower across the maturity curve

    TORONTO, June 6 (Reuters) - The Canadian dollar strengthened
to a two-week high against its U.S. counterpart on Monday as oil
prices rose and investors turned their attention to a speech by
U.S. Federal Reserve Chair Janet Yellen.
    U.S. crude prices were up 2.06 percent at $49.62 a
barrel, lifted by a plunge in the greenback on Friday that could
spur demand just as attacks on Nigerian oil infrastructure
tighten supplies.      
    Canadian dollar-implied volatility, which traders use to
price options on the currency, has dropped after much
weaker-than-expected U.S. employment data on Friday lowered the
chances of a Fed rate hike. For three-month options, implied
volatility was at 9.2 percent on Monday, its lowest since
January. 
    Still, when Fed Chair Yellen speaks on Monday, she will
probably keep the door open to an interest rate hike within the
next few months.                 
    At 9:12 a.m. EDT (1312 GMT), the Canadian dollar 
was trading at C$1.2912 to the greenback, or 77.45 U.S. cents,
stronger than Friday's close of C$1.2943, or 77.26 U.S. cents.
    The currency's weakest level of the session was C$1.2981,
while it touched its strongest since May 18 at C$1.2909.
    Speculators have raised bullish bets on the Canadian dollar,
Commodity Futures Trading Commission data showed on Friday. Net
long Canadian dollar positions rose to 26,259 contracts in the
week ended May 31 from 20,047 in the prior week.   
    Canadian employment data for May is awaited at the end of
the week. It may show "the first taste of wildfire-driven
volatility," said a research note on Monday from BMO Capital
Markets.
     The Bank of Canada has said it expects damage from the
wildfires in Alberta to shave 1.25 percentage points off
economic growth in the second quarter. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 2.5 Canadian
cents to yield 0.521 percent and the benchmark 10-year
 falling 30 Canadian cents to yield 1.21 percent.
    On Friday, the 10-year yield hit its lowest in nearly two
months at 1.175 percent.
    Governments and central banks need a certain amount of
coordination so they can discuss policies and consider the
implications on debt levels and financial stability over the
medium term, Bank of Canada Governor Stephen Poloz said on
Saturday. 

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn)