CANADA FX DEBT-C$ weakens as oil falls, U.S. rate hike bets rise

Thu Sep 1, 2016 9:37am EDT
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* Canadian dollar at C$1.3135, or 76.13 U.S. cents
    * Bond prices lower across maturity curve

    TORONTO, Sept 1 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Thursday as oil prices fell and
investors raised bets on a Federal Reserve interest rate hike as
soon as this month.
    U.S. data pointed to sustained labor market strength that
could push the Fed closer to raising rates, and the U.S. dollar
 firmed against a basket of major currencies, with some
investors positioning for Friday's non-farm jobs report.
    The probability of a Fed rate increase in September climbed
to 30 percent from 24 percent on Wednesday, according to the CME
Group's FedWatch calculation based on U.S. short-term interest
rate futures.
    U.S. crude prices were down 1.32 percent at $44.11 a
barrel even after Saudi Arabia said OPEC was moving towards a
common position on oil production that some investors believe
could support prices. 
    At 9:23 a.m. EDT (1323 GMT), the Canadian dollar 
was trading at C$1.3135 to the greenback, or 76.13 U.S. cents,
weaker than Wednesday's close of C$1.3116, or 76.24 U.S. cents.
    The currency's strongest level of the session was C$1.3093,
while its weakest was C$1.3140.
    On Wednesday, the loonie touched a three-week low at
    Losses for the Canadian dollar came after data on Wednesday
showed the country's economy contracted more in the second
quarter than the Bank of Canada had projected. 
    Still, figures for June showed signs that a pickup was
already underway and investors are betting that the Bank of
Canada will leave its policy rate unchanged at next week's
interest rate decision. 
    Canadian government bond prices were lower across the
maturity curve in sympathy with U.S. Treasuries. The two-year
 bond dipped 0.5 Canadian cent to yield 0.585 percent
and the benchmark 10-year declined 12 Canadian cents
to yield 1.036 percent.
    The 10-year yield fell 3.4 basis points further below its
U.S. counterpart, with the spread hitting -57.8 basis points,
its largest gap since March 30, as Treasuries underperformed.
    Chinese and Canadian firms signed 56 deals worth more than
C$1.2 billion ($914.8 million) at a ceremony on Thursday,
Canadian trade minister Chrystia Freeland said in Shanghai.
     Austria is ready to confront other European Union members
states over its opposition to a free trade deal with Canada,
Chancellor Christian Kern said, because it sees it containing
many of the same problems as one being negotiated with the
United States. 

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)