CANADA FX DEBT-Canadian dollar firms as investors trim bearish bets
(Adds analyst quotes, Bank of Canada official comments, background, updates prices) * Canadian dollar ends at C$1.3441, or 74.40 U.S. cents * Bond prices higher across flatter yield curve * 10-year yield touches 11-month high at 1.602 percent By Fergal Smith TORONTO, Nov 16 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as domestic manufacturing sales rose for the fourth consecutive month and short positions in the currency were scaled back. The gains helped the loonie pare losses from a sell-off sparked by last week's U.S. election. On Monday, the currency touched its weakest in eight months at C$1.3589. "You are seeing some position squaring," said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets, adding that short positions in the loonie had become "very stretched." Speculators had raised bearish bets on the Canadian dollar to the highest level since March, Commodity Futures Trading Commission data showed on Monday. "Ultimately, we still like the U.S. dollar higher as we get closer to the Fed (Federal Reserve) meeting" Jespersen said. Investors expect the U.S. central bank to raise interest rates in December for the first time in a year, CME Group's FedWatch tool shows. The 0.3 percent September increase in Canadian manufacturing sales topped economists' expectations for a gain of 0.1 percent, but a dip in volumes suggested slower overall economic growth heading into the fourth quarter. U.S. crude prices settled 24 cents lower at $45.57 a barrel as the market gave more weight to a bigger-than-expected U.S. crude inventory build than Russia's comments about a possible meeting with Saudi Arabia that renewed hopes for a production freeze deal. Oil is one of Canada's major exports. The Canadian dollar ended at C$1.3441 to the greenback, or 74.40 U.S. cents, slightly stronger than Tuesday's close of $1.3447, or 74.37 U.S. cents. The currency touched its strongest level since Thursday at C$1.3405, while its weakest level of the session was C$1.3506. The Bank of Canada needs to consider the effect of an interest rate hike by the Fed on exchanges rates and market rates, but does not need to keep pace with U.S. policy, Bank of Canada Deputy Governor Timothy Lane said. Canadian government bond prices rose across a flatter yield curve in sympathy with U.S. Treasuries. The two-year rose 0.5 Canadian cent to yield 0.66 percent and the benchmark 10-year climbed 32 Canadian cents to yield 1.502 percent. Still, the 10-year yield touched its highest intraday level since December, at 1.602 percent, as investors expected U.S. President-elect Donald Trump to pursue policies that will boost inflation. (Reporting by Fergal Smith; Editing by Meredith Mazzilli and Richard Chang)
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