CANADA FX DEBT-C$ weakens to 2-week low as U.S. rate hike bets rise

Fri Aug 26, 2016 4:47pm EDT
 
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(Adds analyst comments, details on Fed officials, U.S. interest
rate bets, CFTC data and budget data, updates prices)
    * Canadian dollar ends at C$1.3000, or 76.92 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, Aug 26 (Reuters) - The Canadian dollar weakened to
a two-week low against its broadly stronger U.S. counterpart on
Friday as chances of a U.S. interest rate hike this year rose
after comments from Federal Reserve officials, including Fed
Chair Janet Yellen.
    Speaking in Jackson Hole, Wyoming, Yellen said the case for
raising U.S. interest rates has strengthened in recent months.
Fed Vice Chair Stanley Fischer later reinforced that message.
  
    The market is in "desperate need" of new information in
order to break out of its current trading range, said Brad
Schruder, director of corporate sales and structuring at BMO
Capital Markets.
    Higher U.S. inflation data may be necessary to convince
markets that the Fed is ready to pull the trigger on a rate
hike, Schruder added.
    The odds of a hike in September climbed to 30 percent from
21 percent on Thursday, according to CME Group's FedWatch tool.
Traders were pricing in a 60.2 percent chance of a hike in
December, up from 51.8 percent on Thursday 
    Oil prices rose, but some gains were pared as traders
reacted to comments from Fed officials and reports of missile
activity in Saudi Arabia. U.S. crude oil futures settled
31 cents higher at $47.64 a barrel. 
    The Canadian dollar ended at C$1.3000 to the
greenback, or 76.92 U.S. cents, weaker than Thursday's close of
C$1.2926, or 77.36 U.S.
    The currency's strongest level of the session was C$1.2832,
while it touched its weakest since Aug. 11 at $1.3013.
    For the week, the loonie lost 1.1 percent.
    Speculators raised bullish bets on the Canadian dollar for
the first week in four, Commodity Futures Trading Commission
data showed. Net long Canadian dollar positions rose to 16,734
contracts in the week ended Aug. 23 from 12,473 contracts in the
prior week.
    Canada swung to a budgetary deficit in June compared with a
year ago, the federal finance department said. 
    Canadian government bond prices were lower across the
maturity curve. The two-year bond dipped 2 Canadian
cents to yield 0.602 percent and the benchmark 10-year
 declined 21 Canadian cents to yield 1.088 percent.
    Canada's 2-year yield fell 4.5 basis points further below
its U.S. equivalent as Treasuries underperformed, with the
spread hitting -23.9 basis points.
    Canada will likely maintain its 2 percent inflation target
and bypass alternative policy goals when the central bank renews
its inflation-control agreement this year, strategists say, but
the main measure of core inflation may change.   

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli and
Dan Grebler)