January 8, 2018 / 9:50 PM / 3 years ago

CANADA FX DEBT-C$ off three-month high, businesses remain optimistic

 (Adds economist comment, details for survey, updates prices)
    * Canadian dollar at C$1.2423, or 80.50 U.S. cents
    * Bond prices mostly lower across the yield curve

    By Alastair Sharp
    TORONTO, Jan 8 (Reuters) - The Canadian dollar weakened
slightly against a stronger U.S. counterpart on Monday, pulling
back from Friday's three-month high even as optimism in a
business survey supported bets that the Bank of Canada would
raise interest rates next week.
    The likelihood of a rate hike on Jan. 17 jumped to more than
85 percent after the central bank released a report showing
Canadian companies remain optimistic about future sales as signs
of capacity pressures and labor shortages have picked up.
    "It said businesses aren't deeply concerned, as they lay out
their investment plans, about the risk of NAFTA really skidding
off the rails, and that's comforting to the Bank of Canada as it
raises rates," said Derek Holt, head of capital markets
economics at Scotiabank. 
    The report reinforced hike expectations after data on Friday
showed the economy added almost 80,000 jobs in December for the
second month in a row.                       
    It pushed the yield on Canada's two-year bond            to
its highest since June 2011 at 1.795 percent.
    The U.S. dollar        climbed against a basket of major
currencies as investors in the euro took profits after a recent
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
down 0.1 percent at C$1.2423 to the greenback, or 80.50 U.S.
cents. The currency traded in a range of C$1.2378 to C$1.2450.
    On Friday, the loonie touched its strongest since Sept. 27
at C$1.2355.
    Still, speculators have cut bullish bets on the Canadian
dollar to their lowest since July, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
Friday. As of Jan. 2, net long positions had fallen to 14,739
contracts from 17,346 a week earlier.             
    Prices of oil, one of Canada's major exports, edged higher
on a slight decline in the number of U.S. rigs drilling for new
production and the Organization of the Petroleum Exporting
Countries' sustained output cuts.             
    Canadian government bond prices were mostly lower across the
yield curve, with the two-year            down 1.5 Canadian
cents to yield 1.784 percent and the 10-year             off 4
Canadian cents to yield 2.159 percent. The 30-year issue was up
5 Canadian cents to yield 2.356 percent.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn and Tom
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