June 16, 2017 / 9:10 PM / 3 years ago

CANADA FX DEBT-C$ notches big weekly gain on hawkish turn from central bank

    * Canadian dollar at C$1.3221, or 75.64 U.S. cents
    * Loonie notches 1.9 percent gain for the week
    * Bond prices slightly higher across yield curve
    * Two-year spread vs Treasuries hits narrowest since Feb. 24

    By Alastair Sharp
    TORONTO, June 16 (Reuters) - The Canadian dollar firmed on
Friday to finish its strongest week against its U.S. counterpart
in 18 months, helped by an uptick in oil prices, which added
support after signals from the Bank of Canada that higher
interest rates lie ahead. 
    The gap between Canadian and U.S. bond yields narrowed, with
the 2-year spread recording its smallest gap since Feb. 24.
    Chances of a rate increase by December have surged to 90
percent from less than one-in-four before stronger-than-expected
jobs data one week ago.           
    Since then, the central bank's top two officials have said
that rate cuts put in place in 2015 had largely done their work,
and the bank would assess whether rates need to be kept at
near-record lows.                         
    "Unquestionably, the Bank of Canada has shifted to a hawkish
stance, but we don't have a clear indication on the timeline on
when they are considering hiking," said Adam Button, a currency
analyst at ForexLive in Montreal. 
    At 4 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.3221 to the greenback, or 75.64 U.S. cents, up
0.4 percent. The currency traded in a range of C$1.3222 to
    It touched its strongest level in 3-1/2 months on Wednesday
at C$1.3165. For the week, it notched a 1.9 percent advance, its
biggest since the first week of 2016.
    Prices of oil, one of Canada's major exports, bounced up off
the year's lows, but crude posted its fourth weekly decline on
persistent concerns about global oversupply.      
    Speculators cut bearish bets on the Canadian dollar for a
third straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. Canadian
dollar net short positions fell to 88,595 contracts as of June
13 from 94,501 a week earlier. In May, net short positions
reached a record high 99,109 contracts.
    "Speculators were dead wrong on the Canadian dollar and
they're clearing out," ForexLive's Button said.
    Foreign investment in Canadian securities slowed in April as
investors scooped up bonds but sold their equities holdings,
data from Statistics Canada showed.             
    In other domestic data, lending to small businesses picked
up in April, suggesting growth in the broader economy was
gaining momentum.             
    Canadian government bond prices were marginally higher
across the yield curve, with the two-year            up 2.5
Canadian cents to yield 0.899 percent and the 10-year
            adding 6 Canadian cents to yield 1.524 percent.
    On Thursday, the 2-year yield touched its highest level in
nearly 2-1/2 years at 0.937 percent.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Leslie Adler)
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