July 13, 2017 / 8:45 PM / 2 months ago

CANADA FX DEBT-C$ extends gains, yields climb after rate hike

    * Canadian dollar at C$1.2723, or 78.60 U.S. cents
    * Chance of October rate hike rises to near 65 percent
    * Bond prices lower across the yield curve
    * 10-year yield reaches its highest since Dec 2014, 2-year
touches highest since September 2013

    By Solarina Ho
    TORONTO, July 13 (Reuters) - The Canadian dollar firmed on
Thursday against its U.S. counterpart, extending sharp gains
made in the previous session as domestic bond yields rose in
anticipation of additional rate increases from the Bank of
Canada.
    The loonie surged to its highest in more than a year on
Wednesday, scoring its biggest one-day gain since March, after
the central bank raised interest rates for the first time since
2010.
    Chances of another interest rate hike by October have
increased to nearly 65 percent from roughly one-in-two before
the rate decision, data from the overnight index swaps market
showed.           
    The U.S. dollar also rose against its peers, bouncing from
losses in the previous session, as data showed the number of
Americans filing for unemployment benefits fell last week and
producer prices unexpectedly rose in June.
    The data, which came a day after Federal Reserve chair Janet
Yellen signaled a less hawkish stance than anticipated, was
expected to keep the Fed on track for a third interest rate
increase this year.      
    "The market correctly, I think, reevaluated her (Yellen's)
dovish stance from yesterday," said Mark Chandler, head of
Canadian fixed income and currency strategy at RBC Capital
Markets. "In light of that, you could say the fact that the
Canadian dollar could hold on to its gains is a bit of an
accomplishment."
    At 4:00 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2723 to the greenback, or 78.60 U.S. cents, up
0.2 percent.
    The currency traded in a range of C$1.2722 to C$1.2771. It
touched on Wednesday its strongest since June 2016 at 1.2681.
    Prices of oil, one of Canada's major exports, rose as robust
Chinese demand was seen helping to drain the global supply glut.
U.S. crude        was up 1.23 percent to $46.05 a barrel.
            
    New housing prices in Canada climbed 0.7 percent in May,
more than economists' forecasts for a 0.3 percent increase, as
prices continued to rise in the hot markets of Toronto and
Vancouver, Statistics Canada said.             
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 3.5 Canadian cents to
yield 1.214 percent and the 10-year             falling 30
Canadian cents to yield 1.912 percent.
    The 2-year yield touched its highest intraday level since
September 2013 at 1.257, while the 10-year touched 1.948
percent, a level not reached since December 2014.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Andrew Hay)
  
 

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