CANADA FX DEBT-C$ strengthens to a 1-week high as oil rallies
* Canadian dollar at C$1.2775, or 78.28 U.S. cents * Bond prices lower across the maturity curve TORONTO, May 12 (Reuters) - The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Thursday as oil and stocks rose, while oil sands workers readied to return after a wildfire. U.S. oil prices reached a six-month high, supported by data from the International Energy Agency (IEA) showing tightening supply. U.S. crude prices were up 1.15 percent to $46.74 a barrel Wall Street opened higher, adding to support for the risk-sensitive commodity-linked currency. Workers for one of the largest oil sands companies affected by a wildfire in northern Canada will begin returning to the shuttered facilities on Thursday, a union official said, the latest indication the key petroleum production area was slowly coming back online. The loss of production has weighed on Canada's economic outlook. Economists say second-quarter growth may slow to a standstill, leaving the central bank on hold. Overnight index swaps imply a 30-percent chance of a Bank of Canada interest rate cut this year, dipping from nearly 40 percent at the start of the week as oil rallied and some oil sands operations restarted. Still the market has swung from a 20 percent chance of a hike seen at the beginning of the month. At 9:26 a.m. EDT (1326 GMT), the Canadian dollar was trading at C$1.2775 to the greenback, or 78.28 U.S. cents, stronger than Wednesday's close of C$1.2851, or 77.81 U.S. cents. The currency's weakest level was C$1.2879, while it touched its strongest since May 4 of C$1.2772. Canadian new home prices rose 0.2 percent in March, topping analysts' expectations of 0.1 percent, data from Statistics Canada showed. Prices have increased for the last 12 consecutive months. Canadian government bond prices were lower across the maturity curve in sympathy with U.S. Treasuries. The two-year price fell 5.5 Canadian cents to yield 0.569 percent and the benchmark 10-year declined 32 Canadian cents to yield 1.338 percent. The 10-year yield touched on Wednesday its lowest since April 18 of 1.274 percent. (Reporting by Fergal Smith; Editing by Nick Zieminski)
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