December 14, 2017 / 9:27 PM / 8 months ago

CANADA FX DEBT-C$ notches 1-week high as Poloz boosts rate hike bets

 (Adds analyst quotes and details throughout; updates prices)
    * Canadian dollar at C$1.2755, or 78.40 U.S. cents
    * Chances of a rate hike by March rise to 68 percent
    * Oil prices rise 0.8 percent
    * Bond prices lower across a flatter yield curve

    By Fergal Smith
    TORONTO, Dec 14 (Reuters) - The Canadian dollar strengthened
to a one-week high against its U.S. counterpart on Thursday
after a speech by Bank of Canada Governor Stephen Poloz boosted
expectations for further interest rate hikes early next year.
    The loonie rallied as much as 1.1 percent after Poloz said
that the central bank was increasingly confident the economy
will need less stimulus over time.                 
    The central bank raised rates twice this year but left its
benchmark rate steady at 1 percent last week as it struck a more
dovish tone than expected after strong employment data. 
    "Traders like nothing more than a trend to jump on top of
before year end, to put a little cherry on their cake," said
Michael Goshko, corporate risk Manager at Western Union Business
Solutions.
    The break below C$1.2780 in USD-CAD prompted traders who had
been short Canadian dollars to cut their losses, Goshko said.
    Chances of a rate hike by January edged up to 32 percent,
while the implied probability of a tightening by March climbed
to 68 percent from 61 percent before the speech. 
    At 4 p.m. EDT (2100 GMT), the Canadian dollar          was
trading at C$1.2755 to the greenback, or 78.40 U.S. cents, up
0.5 percent.
    The currency's weakest level of the session was C$1.2866,
while it touched its strongest since Dec. 6 at C$1.2713.
    Higher prices of oil, one of Canada's exports, added to
support for the loonie.             
    U.S. crude futures        settled 0.8 percent higher at
$57.04 a barrel after a pipeline outage in Britain continued to
support prices.
    Resales of Canadian homes rose 3.9 percent in November from
October, the fourth straight monthly rise, but the momentum may
not last as stricter mortgage rules take effect in January, the
Canadian Real Estate Association said.             
    Statistics Canada said Canadian household debt as a share of
income reached a record high of 171.1 percent in the third
quarter. The report is likely to reinforce concerns that
consumers could run into trouble as interest rates rise.
            
    Canadian government bond prices were lower across a much
flatter yield curve, with the two-year            down 12
Canadian cents to yield 1.571 percent and the 10-year
            declining 16 Canadian cents to yield 1.863 percent.
    The gap between the 2- and 10-year yields narrowed by 4.7
basis points to a spread of 29.2 basis points, its narrowest
since January 2008. 

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Susan
Thomas)
  
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