December 21, 2017 / 9:38 PM / in 3 years

CANADA FX DEBT-C$ hits two-week high after data, GDP next focus

    * Canadian dollar at C$1.2741, or 78.36 U.S. cents
    * Bond prices lower across the maturity curve
    * 2-year yield at highest since 2011 as rate hike bets jump

    By Alastair Sharp
    TORONTO, Dec 21 (Reuters) - The Canadian dollar hit its
strongest level against its U.S. counterpart in more than two
weeks on Thursday, boosted by strong inflation and retail sales
data that raised expectations the Bank of Canada could hike
rates again as soon as January.
    The yield on Canadian 2-year bonds also surged to their
highest since 2011, while their spread versus U.S. equivalents
narrowed to the closest in more than a month as markets priced
in a nearly 50 percent chance the central bank hikes in January.
    Monthly gross domestic product data for October is due on
Friday, with market participants bracing for a
stronger-than-expected number following Thursday's data and
robust wholesale trade numbers for October released on
    "Improving data over the past few days will have to be
weighed against upcoming NAFTA discussions and the bank will
have to decide on whether a rate hike sooner than later is
justified," said Don Mikolich, executive director of foreign
exchange sales at CIBC Capital Markets, which is currently not
forecasting a rate hike until the second half of 2018. 
    At 4 p.m. ET (2100 GMT), the Canadian dollar          was
trading at C$1.2741 to the greenback, or 78.36 U.S. cents, up
0.7 percent. It touched C$1.2700 during the session, its
strongest since Dec. 6.
    Canadian government bond prices fell across the maturity
curve, with the two-year            price down 7.5 Canadian
cents to yield 1.681 percent and the benchmark 10-year
            falling 32 Canadian cents to yield 2.03 percent, its
highest yield in almost two months.
    The Canada-U.S. two-year bond spread narrowed to -20.1 basis
points, while the 10-year spread came in to -45.2 basis points.

 (Reporting by Alastair Sharp; Editing by Bernadette Baum and
Chris Reese)
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