July 7, 2017 / 8:31 PM / 3 years ago

CANADA FX DEBT-C$ nears 10-month high as jobs gain boosts rate hike chances

 (Adds analyst quotes and details on rate hike chances and CFTC
data; updates prices)
    * Canadian dollar at C$1.2885, or 77.61 U.S. cents
    * Loonie touches its strongest since Sept. 8 at C$1.2860
    * Bond prices lower across a steeper yield curve
    * 10-year yield reaches a two-year high at 1.894 percent

    By Fergal Smith
    TORONTO, July 7 (Reuters) - The Canadian dollar strengthened
on Friday to nearly a 10-month high against its U.S. counterpart
after stronger-than-expected domestic jobs data boosted chances
of an interest rate increase  by the Bank of Canada as soon as
next week.
    Canada's economy added 45,300 jobs last month, topping the 
10,000 gain forecast by economists.                 
    "It is a pretty solid report ... if you were leaning toward
a hike in July this would do nothing to dissuade you," said
Andrew Kelvin, senior rates strategist at TD Securities.    
    Expectations of a rate increase have been rising since top
Bank of Canada officials said in June that a pair of 2015
interest rate cuts had done their job in cushioning the economy
from collapsing oil prices.             
    Chances of a hike at next week's rate meeting rose to 93
percent from 86 percent before the jobs report, data from the
overnight index swaps market showed. The market has fully priced
in an increase by September and has implied an 80 percent chance
of a second hike by December.           
    Strengthening of the domestic economy can convince investors
that the central bank will not just raise rates next week but
continue to raise them, said Brad Schruder, director of
corporate sales and structuring at BMO Capital Markets.
    "That's why you are seeing the Canadian dollar outperform in
the way it has."
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.2885 to the greenback, or 77.61 U.S. cents, up
0.7 percent.
    The currency touched its strongest since Sept. 8 at
C$1.2860, while it rose 0.6 percent for the week.
    The loonie strengthened even as prices of oil       , one of
Canada's major exports, fell 2.8 percent and the U.S. dollar
    The greenback rose against a basket of major currencies
after a report showed the U.S. economy also created more jobs
than expected in June.             
    Speculators cut bearish bets on the loonie for a sixth
straight week, data from the U.S. Commodity Futures Trading
Commission and Reuters calculations showed. Canadian dollar net
short positions fell to 39,372 contracts as of July 3 from
49,495 a week earlier.
    Canadian government bond prices were lower across a steeper
yield curve. The 10-year             declined 43 Canadian cents
to yield 1.884 percent.
    The yield reached its highest intraday since June 2015 at
1.894 percent, while the gap between it and the U.S. equivalent
narrowed by 3.3 basis points to -50.2 basis points.

 (Editing by Steve Orlofsky and Tom Brown)
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