CANADA FX DEBT-C$ strengthens to 3-week high as oil rallies

(Adds analyst quotes, details on Fed Chair Yellen's speech,
updates prices)
    * Canadian dollar settles at C$1.2807, or 78.08 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, June 6 (Reuters) - The Canadian dollar strengthened
to a three-week high against its U.S. counterpart on Monday as
oil prices rose, while expectations for a U.S. interest rate
hike this month remained low after a speech by Federal Reserve
Chair Yellen.
    It was the second straight day of strong gains for the
loonie after much weaker-than-expected U.S. jobs data on Friday
cut expectations for Fed rate hikes.
    Canadian dollar-implied volatility, which traders use to
price options on the currency, has dropped since Friday's U.S.
jobs data. For three-month options, implied volatility was at
9.2 percent, its lowest since January. 
    "When you get a sea change in market sentiment on something
as powerful as the course of U.S. interest rates you are going
to have a huge effect," said Michael Goshko, corporate risk
manager at Western Union Business Solutions.
    Yellen said that interest rate hikes are likely on the way
but stressed that surprises could emerge that could change her
expectations for rates. 
    In the near term markets will probably see a "stronger
impetus" to buy commodity currencies such as the Canadian dollar
as the threat recedes of Fed rate hikes and the U.S. dollar
weakens, but a "down shift" in global growth would reduce demand
for commodities and weigh on the loonie, said Goshko.    
    U.S. crude prices settled up $1.07 at $49.69, lifted
by supply worries.              
    The Canadian dollar ended at C$1.2807 to the
greenback, or 78.08 U.S. cents, stronger than Friday's close of
C$1.2943, or 77.26 U.S. cents.
    The currency's weakest level of the session was C$1.2981,
while it touched its strongest since May 12 at C$1.2806.    
    Speculators have raised bullish bets on the Canadian dollar,
Commodity Futures Trading Commission data showed on Friday.
    Canadian employment data for May is awaited at the end of
the week. It may show "the first taste of wildfire-driven
volatility," BMO Capital Markets said in a research note.
    The Bank of Canada has said it expects damage from the
wildfires in Alberta to shave 1.25 percentage points off
economic growth in the second quarter. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 7.5
Canadian cents to yield 0.547 percent and the benchmark 10-year
 falling 57 Canadian cents to yield 1.238 percent.
    On Friday, the 10-year yield hit its lowest in nearly two
months at 1.175 percent.

 (Reporting by Fergal Smith; Editing by Dan Grebler)