June 20, 2017 / 8:41 PM / in 5 months

CANADA FX DEBT-C$ retreats as oil price slumps to 9-month low

 (Adds analyst quotes and details throughout; updates prices)
    * Canadian dollar at C$1.3264, or 75.39 U.S. cents
    * U.S. crude        prices fall 2.2 percent
    * Bond prices higher across a flatter yield curve

    By Fergal Smith
    TORONTO, June 20 (Reuters) - The Canadian dollar weakened on
Tuesday against its U.S. counterpart, paring some of its recent
gains as a drop in oil prices offset stronger-than-expected
domestic wholesale trade data.
    The loonie had surged as much as 2.5 percent since the
release of stronger-than-expected jobs data earlier this month.
Most of those gains came after the Bank of Canada signaled last
week that higher interest rates lie ahead. On Wednesday, the
currency touched its strongest point in 3-1/2 months at
C$1.3165.             
    "I think the combination of market fatigue as well as oil"
helped stall the Canadian dollar's gains, said Greg Anderson,
global head of foreign exchange strategy at BMO Capital Markets.
   
    Prices of oil, one of Canada's major exports, fell on news
of boosted supply by several key producers. U.S. crude oil
futures        settled 2.2 percent lower at $43.23 a barrel, its
lowest since September.          
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3264 to the greenback, or 75.39 U.S. cents, down
0.3 percent. It traded in a range of C$1.3205 to C$1.3285.    
    The loonie has benefited this month from short-covering
after bearish bets on the currency reached a record high in May.
             
    "To get people to keep buying it (the currency) you got to
have an outright positive story that gets them long, and it's a
little hard to spin that with oil at $43 a barrel, Anderson
said.
    Canadian wholesale trade rose 1.0 percent in April from
March, led by higher sales in the machinery, equipment and
supplies subsector. Analysts had forecast a 0.5 percent
increase.             
    The data adds to positive signs for the Canadian economy in
the second quarter, said Nick Exarhos, economist at CIBC Capital
Markets, in a research note.       
    Chances of a Bank of Canada interest rate hike as early as
next month have climbed to one-in-three, from nearly zero
earlier this month, while a rate hike has been fully priced in
by December, data from the overnight index swaps market shows.
          
    Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries. The two-year
           rose 5 Canadian cents to yield 0.916 percent and the
10-year             climbed 34 Canadian cents to yield 1.504
percent.
    The 2-year yield fell 1.1 basis points further below its
U.S. equivalent to a spread of -43.2 basis points. On Monday it
touched its smallest gap in nearly four months at -42.1 basis
points.

 (Reporting by Fergal Smith; Editing by Bernadette Baum and
Cynthia Osterman)
  
 

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