CANADA FX DEBT-C$ weakens as Yellen, data boost Fed hike bets
(Adds analyst comment, updates prices to close) * Canadian dollar settles at C$1.3507, or 74.04 U.S. cents * Loonie had earlier touched strongest since Nov. 10 at C$1.3400 * Bond prices lower across the yield curve By Alastair Sharp TORONTO, Nov 17 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as strong U.S. economic data and comments from Federal Reserve Chair Janet Yellen solidified expectations of a U.S. interest rate hike next month. A broadly stronger greenback weighed on oil prices, which had earlier helped the loonie strengthen to a one-week high on hopes for an OPEC deal to limit production. Oil is one of Canada's major exports. The Canadian dollar settled at C$1.3507 to the greenback, or 74.04 U.S. cents, weaker than Wednesday's close of C$1.3441, or 74.40 U.S. cents. The U.S. dollar and bond yields have jumped since last week's presidential election victory by Donald Trump, who has promised tax cuts and spending that could spark U.S. inflation. While the market broadly expects a Fed hike in December, the Bank of Canada is seen stuck on the sidelines. "The Bank of Canada is handcuffed when it comes to raising interest rates in response to the Fed given the vulnerabilities in the housing market," said Scott Smith, senior market analyst at Cambridge Global Payments in Toronto. He said the Canadian currency could push up to C$1.37 or C$1.38 into early 2017 as the market moves to price in a more aggressive Fed hiking cycle through next year. The currency's weakest level of the session was C$1.3522, while it touched its strongest since Nov. 10 at C$1.3400. On Monday, the currency touched its weakest in eight months at C$1.3589. Canada's inflation report for October is due on Friday. The annual inflation rate is forecast to rise to 1.5 percent, closer to the Bank of Canada's 2 percent target. U.S. consumer prices recorded their biggest increase in six months in October, helping support the December Fed hike thesis. The U.S. central bank could raise rates "relatively soon" if economic data keeps pointing to an improving labor market and rising inflation, Fed Chair Yellen said. Lending activity to Canadian small businesses slowed modestly in September, though borrowing picked up for medium-sized firms, a report showed. Foreign investors bought a net C$11.77 billion in Canadian securities in September, mainly in new bonds, Statistics Canada said. Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year dipped 3 Canadian cents to yield 0.676 percent, and the benchmark 10-year fell 50 Canadian cents to yield 1.561 percent. The 10-year yield touched its highest since December on Wednesday. (Additional reporting by Fergal Smith; Editing by W Simon and James Dalgleish)
© Thomson Reuters 2017 All rights reserved.