June 29, 2017 / 8:53 PM / 3 years ago

CANADA FX DEBT-C$ posts nears 5-month high as yield jump pressures short-sellers

 (Adds dealer quotes, background throughout; updates prices)
    * Canadian dollar at C$1.3005, or 76.89 U.S. cents
    * Loonie touches its strongest since Feb. 2 at C$1.2986
    * Bond prices lower across steeper yield curve
    * 10-year yield touches 3-month high at 1.715 percent

    By Fergal Smith
    TORONTO, June 29 (Reuters) - The Canadian dollar
strengthened to a nearly five-month high against its U.S.
counterpart on Thursday, as higher domestic yields pressured
investors that had bet against the currency and oil prices rose.
    Gains for the loonie came after it scored on Wednesday,
posting its biggest advance in three months as hawkish comments
from Bank of Canada Governor Stephen Poloz helped push Canadian
bond yields upward.             
    Higher yields tend to increase the return from owning a
    Given the "sizable" move higher in yields we are starting to
see an unwind of short positions in the Canadian dollar, said
Scott Lampard, head of global markets at HSBC Bank Canada.
    Data from the U.S. Commodity Futures Trading Commission and
Reuters calculations last week showed that bearish bets on the
Canadian dollar had been reduced from record levels in May, but
remained at elevated levels.             
    Chances of a Bank of Canada rate hike next month have
increased to 44 percent from just 20 percent after subdued
inflation data on Friday, data from the overnight index swaps
market shows           .
    Prices of oil, one of Canada's major exports, rose for a
sixth straight session after a decline in weekly U.S. production
eased concerns about deepening oversupply.
    U.S. crude        prices settled 19 cents higher at $44.93 a
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.3005 to the greenback, or 76.89 U.S. cents, up
0.3 percent.
    The currency's weakest level of the session was C$1.3044,
while it touched its strongest since Feb. 2 at C$1.2986.
    "It isn't just a Canadian dollar story," it's a broader
shift away from the greenback, Lampard said.
    The U.S. dollar fell against a basket of major currencies
       on growing expectations of more hawkish monetary policies
in Europe as well as Canada and on skepticism of another Federal
Reserve interest rate increase this year.       
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries and German Bunds.
    The 10-year             declined 73 Canadian cents to yield
1.707 percent. The 10-year yield touched its highest intraday
since March 21 at 1.715 percent, while the gap between it and
its U.S. equivalent narrowed by 3.8 basis points to a spread of
-56.1 basis points, its narrowest since Oct. 19, as Canadian
government bonds underperformed.
    Canada's gross domestic product data for April and the Bank
of Canada's business outlook report are due on Friday         .

 (Reporting by Fergal Smith, editing by G Crosse)
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