CANADA FX DEBT-C$ extends gains after hawkish central bank comments this week
* Canadian dollar at C$1.3184, or 75.85 U.S. cents * Loonie touches its strongest since Feb. 28 at C$1.3165 * Bond prices higher across the yield curve * 10-year spread vs Treasuries narrowest in 7 months TORONTO, June 14 (Reuters) - The Canadian dollar strengthened to a fresh 3-1/2-month high against its broadly weaker U.S. counterpart on Wednesday, extending this week's gains for the loonie after the Bank of Canada signaled that higher interest rates lie ahead. Chances of a rate hike this year have surged to more than three-in-four after hawkish comments this week from central bank officials, including Governor Stephen Poloz. Chances were less than one-in-four before stronger-than-expected jobs data on Friday. Strengthening of the currency could put pressure on often-leveraged speculators to cover short positions, which had reached a record high, and accelerate any gains in the loonie. At 9:44 a.m. ET (1344 GMT), the Canadian dollar was trading at C$1.3184 to the greenback, or 75.85 U.S. cents, up 0.4 percent. The currency's weakest level of the session was C$1.3245, while it touched its strongest since Feb. 28 at C$1.3165. Gains for the loonie came even as prices of oil, one of Canada's major exports, fell after data showed a build in U.S. crude stocks and OPEC reported a rise in its production despite a pledge to cut supply. The U.S. dollar fell against a basket of major currencies after the release of weaker-than-expected U.S. inflation and retail sales data. The Federal Reserve was expected today to raise interest rates but weaker economic data could reduce the chances of further U.S. rate increases this year. Canadian household debt as a share of income dipped in the first quarter but remained near record highs, Statistics Canada said, in a report likely to reinforce concerns that consumers are becoming overly indebted. The ratio of debt to disposable income edged down to 166.9 percent from an adjusted 167.2 percent in the fourth quarter. Separate domestic data showed that home prices rose in May as Toronto remained robust despite recent government efforts to cool the market, while prices in Vancouver picked back up to hit a fresh peak. Canadian government bond prices rose across the yield curve in sympathy with U.S. Treasuries. The two-year rose 7 Canadian cents to yield 0.871 percent and the 10-year climbed 50 Canadian cents to yield 1.506 percent. The gap between the 10-year yield and its U.S. equivalent narrowed by 2 basis points to a spread of -62.6 basis points, its smallest since Nov. 8, the day of the U.S. election. (Reporting by Fergal Smith; Editing by Meredith Mazzilli)
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