June 28, 2017 / 8:47 PM / in 3 years

CANADA FX DEBT-C$ notches biggest gain since March as rate hike bets jump

 (Adds analyst quote, details throughout; updates prices)
    * Canadian dollar at C$1.3030, or 76.75 U.S. cents, up 1.3
    * Loonie touches its strongest since Feb. 16 at C$1.3010
    * Chances of a rate hike in July rise to 45 percent
    * Bond prices lower across a flatter yield curve

    By Fergal Smith
    TORONTO, June 28 (Reuters) - The Canadian dollar scored its
biggest gain in three months on Wednesday against its U.S.
counterpart, as hawkish comments by Bank of Canada Governor
Stephen Poloz raised expectations of an interest rate hike as
early as July.
    Interest rate cuts made in 2015 have done their job and the
Bank of Canada needs to consider its options at its upcoming
policy meeting as excess capacity is used up, Poloz said in a
CNBC interview in Europe.             
    "That's a pretty solid signal that a July rate hike is very
much on the table," Benjamin Reitzes, senior economist at BMO
Capital Markets, said in a research note.
    Chances of a rate hike next month rose to 45 percent from 30
percent on Tuesday, data from the overnight index swaps market
    "The market is clearing a path for him to hike, so that
makes it in my opinion more likely he takes that window," said
Jimmy Jean, senior economist at Desjardins.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3030 to the greenback, or 76.75 U.S. cents, up
1.3 percent, its biggest advance since mid-March.
    The currency's weakest level of the session was C$1.3198,
while it touched its strongest since Feb. 16 at C$1.3010.
    Adding to support for the loonie, prices of oil, one of
Canada's major exports, climbed to their highest in more than a
week as buyers were encouraged by a small weekly decrease in
U.S. production.          
    Strengthening of the loonie could pressure speculators to
further reduce bearish bets on the currency, which had reached a
record high in May.
    Speculators have cut bearish bets on the loonie for a fourth
straight week, data from the U.S. Commodity Futures Trading
Commission and Reuters calculations showed on Friday.
    Conversations with market participants and business surveys
are invaluable for the Bank of Canada's decision-making, Deputy
Governor Lynn Patterson said in a speech that reiterated the
hawkish sentiment that rate cuts had done their work.
    Canadian government bond prices were lower across a flatter
yield curve. The two-year notes            fell 10.5 Canadian
cents to yield 1.039 percent, the first move above 1 percent in
nearly 2-1/2 years, while the 10-year             declined 38
Canadian cents to yield 1.614 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 7.1 basis points to a spread of -31.7
basis points, its narrowest since Nov. 10, as Canadian
government bonds underperformed.

 (Reporting by Fergal Smith; Editing by Nick Zieminski and Dan
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