January 12, 2018 / 9:46 PM / 2 years ago

CANADA FX DEBT-C$ rallies vs weaker greenback as rate hike bets firm

 (Adds portfolio manager quotes and details throughout; updates
    * Canadian dollar at C$1.2472, or 80.18 U.S. cents
    * U.S. crude oil prices rise 0.8 percent
    * Bond prices fall across much of the yield curve

    By Fergal Smith
    TORONTO, Jan 12 (Reuters) - The Canadian dollar advanced
against its broadly weaker U.S. counterpart on Friday as oil
prices climbed and chances rose that the Bank of Canada will
raise interest rates next week.
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
up 0.4 at C$1.2472 to the greenback, or 80.18 U.S. cents. The
currency traded in a range of C$1.2466 to C$1.2556.
    For the week, the loonie lost 0.5 percent.     
    Investors took the view that the Bank of Canada will hike on
Jan. 17 despite a more uncertain outlook for the North American
Free Trade Agreement.
    "They realize, all things being equal, that they have to be
more hawkish and hike rates," said Greg Taylor, portfolio
manager at Redwood Asset Management.
    "It might be more of a dovish hike," Taylor said. "We have
to start normalizing, but we really can't be more aggressive in
our hiking stance due to some of the uncertainties around
    Expectations that the Bank of Canada will boost interest
rates for the third time since July had surged after recent
blowout domestic jobs data.
    Bets had been tempered by a Reuters report on Wednesday that
Canada was increasingly convinced U.S. President Donald Trump
would soon announce the United States intends to pull out of the
North American Free Trade Agreement. But the chances of a hike
next week have since recovered to around 80 percent, the
overnight index swaps market indicated.           
    Canada, which sends about 75 percent of its exports to the
United States, welcomed U.S. President Donald Trump's suggestion
that talks to modernize NAFTA could be extended beyond the
end-March deadline, a move which might help break a deadlock at
the negotiations.             
    U.S. crude oil futures        settled 0.8 percent higher at
$64.30 a barrel. Oil is one of Canada's major exports.
    Speculators have raised bullish bets on the Canadian dollar
for the first time in three weeks, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed. As
of Jan. 9, net long positions had increased to 17,461 contracts
from 14,739 a week earlier.
    The U.S. dollar        fell against a basket of major
currencies as the euro extended its recent gains.             
    Canadian government bond prices were lower across much of
the yield curve in sympathy with U.S. Treasuries after data
showed underlying U.S. consumer prices rose the most in 11
months. The 10-year             fell 9 Canadian cents to yield
2.178 percent.             

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