June 13, 2017 / 9:13 PM / 3 years ago

CANADA FX DEBT-C$ posts 3-1/2-month high as Poloz signals rate hikes

 (Adds analysts quotes and details throughout, updates prices)
    * Canadian dollar at C$1.3237, or 75.55 U.S. cents
    * Loonie touches its strongest since Feb. 28 at C$1.3212
    * Bond prices lower across the yield curve
    * 2-year yield reaches nearly 2-1/2-year high at 0.930

    By Fergal Smith
    TORONTO, June 13 (Reuters) - The Canadian dollar
strengthened to a 3-1/2-month high against its U.S. counterpart
on Tuesday as comments by Bank of Canada Governor Stephen Poloz
supported the view the central bank could raise interest rates
sooner than previously thought.
    Interest rate cuts instituted in 2015 have largely done
their job as the Canadian economy gathers momentum, the Bank of
Canada's head said, the second top official in as many days to
set the stage for rate hikes.              
    Chances of an interest rate hike this year have surged to
three-in-four from less than one-in-four before stronger than
expected jobs data on Friday, data from the overnight index
swaps market shows.           
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3237 to the greenback, or 75.55 U.S. cents, up
0.7 percent.
    The currency's weakest level was C$1.3325, while it touched
its strongest since Feb. 28 at C$1.3212.
    Strengthening of the currency could put pressure on
often-leveraged speculators to cover short positions and
accelerate any move higher in the currency.             
    "The market was excessively short Canadian dollars, so this
could be a move that is a little bit overdone," said Michael
Goshko, Corporate Risk Manager at Western Union Business
    Bearish bets on the loonie held near a record high as of
June 6, data from the Commodity Futures Trading Commission and
Reuters calculations showed on Friday.             
    Meanwhile, Canadian importers have reaped the benefit of a
stronger currency.
    "The large corporate, experienced, well-heeled buyer ...
they have been planning for this move and they're executing on
it," said Brad Schruder, director of corporate sales and
structuring at BMO Capital Markets.
    Adding to support for the loonie, prices of oil, one of the
country's major exports, edged higher after OPEC detailed supply
cuts around the world.      
    U.S. crude oil futures        settled 38 cents higher at
$46.46 a barrel.
    The U.S. dollar        inched down as traders eyed the
Federal Reserve interest rate decision on Wednesday.
    Canadian government bond prices were much lower across the
yield curve, with the two-year            down 12.5 Canadian
cents to yield 0.911 percent and the 10-year             falling
69 Canadian cents to yield 1.561 percent.
    The 2-year yield, which has jumped more than 18 basis points
since Friday's jobs data, touched its highest intraday since
January 2015 at 0.930 percent.

 (Reporting by Fergal Smith; Editing by Chris Reese)
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