December 1, 2017 / 10:07 PM / 3 years ago

CANADA FX DEBT-C$ rallies the most in 21 months on jobs surge

 (Adds dealer comment, details throughout; updates prices)
    * Canadian dollar at C$1.2696, or 78.76 U.S. cents
    * Currency's 1.6 percent gain is biggest since March 2016
    * Canadian employment rises 79,500 in November
    * Bond prices lower across a flatter yield curve

    By Fergal Smith
    TORONTO, Dec 1 (Reuters) - The Canadian dollar scored its
biggest gain in 21 months against its U.S. counterpart on
Friday, after stronger-than-expected domestic jobs data fueled
expectations for further Bank of Canada interest rate hikes
early next year.
    Canadian employment rose 79,500 in November, much stronger
than the 10,000 gain economists had expected. It added to robust
gains in 2017, while wage growth accelerated to 2.7 percent
year-on-year from 2.4 percent.             
    "The labor miracle in Canada continues," said Derek Holt,
head of capital markets economics at Scotiabank. "The broad
takeaway is the wage and price cycle continues to turn more
    Investors expect the Bank of Canada to leave its benchmark
interest rate steady at 1 percent at next week's policy
decision. But chances of a hike in January rose to 66 percent
from less than 50 percent before the data, the overnight index
swaps market indicated. The central bank raised rates in July
and September.           
    Separate data showed that Canadian economic growth slowed to
1.7 percent in the third quarter, coming off a hot first half of
the year.             
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading at C$1.2696 to the greenback, or 78.76 U.S. cents, up
1.6 percent, its largest gain since March 2016.
    Adding to support for the loonie, U.S. crude        prices
settled 1.7 percent higher at $58.36 a barrel. Oil is one of
Canada's major exports.             
    The currency touched its strongest since Monday at C$1.2683.
For the week, it edged 0.1 percent higher.
    Investors eyed levels around C$1.2660, which have acted as
resistance for the loonie in recent weeks.
    Penetration of that threshold could trigger additional
buying of the currency, said Michael Goshko, corporate risk
manager at Western Union Business Solutions.    
    Speculators added to bullish bets on the Canadian dollar for
the first time in seven weeks, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed 
    The U.S. dollar        slipped against a basket of major
currencies as U.S. political uncertainty and dovish comments
from Federal Reserve officials offset optimism that a U.S. tax
overhaul will be passed.             
    Canadian government bond prices were lower across a flatter
yield curve, with the two-year            down 17.5 Canadian
cents to yield 1.525 percent and the 10-year             falling
23 Canadian cents to yield 1.913 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 10.6 basis points to a spread of -25.3
basis points. On Thursday, the spread had touched its widest in
five months.

 (Reporting by Fergal Smith
Editing by Chizu Nomiyama)
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