June 22, 2017 / 8:34 PM / 3 years ago

CANADA FX DEBT-C$ climbs as retail sales gain boosts rate hike chances

 (Adds strategist quotes and updates prices)
    * Canadian dollar at $1.3235, or 75.56 U.S. cents
    * Chances of a rate hike in July rise to 34 percent
    * Bond prices lower across much of flatter yield curve
    * Canada-U.S. 2-year yield spread hits narrowest in about 4

    By Fergal Smith
    TORONTO, June 22 (Reuters) - The Canadian dollar
strengthened on Thursday against its U.S. counterpart as solid
domestic retail sales boosted expectations for an interest rate
hike in July from the Bank of Canada.
    Canadian retail sales rose 0.8 percent in April on higher
gasoline prices and increased demand for home appliances and
garden supplies, exceeding forecasts for a 0.2 percent gain.
    The data shows a "stronger starting off point than people
had assumed for Q2 consumption," said Mark Chandler, head of
Canadian fixed-income and currency strategy at RBC Capital
    Chances of a BoC rate hike as early as next month rose to 34
percent from less than one in four before the retail sales
report, data from the overnight index swaps market showed.
Traders have already priced in a rate hike for 2017           .
    The Bank of Canada's top two officials last week said that
looser monetary policies put in place in 2015 had largely done
their work, and the bank would assess whether rates must remain
at near-record lows.             
    Interest rate expectations have become a more important
driver for the currency than the direction of oil prices,
Chandler said.    
    Oil, one of Canada's major exports, edged up from multimonth
lows, but prices remained under pressure from a supply glut.
U.S. crude oil futures        settled 21 cents higher at $42.74
a barrel.      
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3235 to the greenback, or 75.56 U.S. cents, up
0.8 percent.
    The currency traded in a range between C$1.3208 and
C$1.3338. In the previous session, the loonie touched its
weakest in nine days at C$1.3348.
    Gains for the Canadian dollar came as Home Capital Group Inc
        , which nearly collapsed in April, said Warren Buffett's
Berkshire Hathaway Inc          would provide a new C$2 billion
line of credit to its Home Trust Co unit.             
    Bearish bets on the Canadian dollar had set a fresh record
high in May as investors worried that the alternative lender's
troubles could hurt the country's red-hot housing market.
    Canadian government bond prices were lower across much of a
flatter yield curve, with the two-year            down 4
Canadian cents to yield 0.933 percent and the 10-year
            falling 9 Canadian cents to yield 1.5 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 3 basis points to a spread of -41.1 basis
points, its smallest since Feb. 24. 
    Canadian inflation data for May is due on Friday         .

 (Reporting by Fergal Smith, editing by G Crosse)
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