July 4, 2018 / 7:23 PM / 2 years ago

CANADA FX DEBT-C$ hovers near three-week high as oil prices rise

 (Adds strategist quotes and details on activity; updates
    * Canadian dollar at C$1.3142, or 76.09 U.S. cents
    * Loonie hits strongest level since June 15, at C$1.3113
    * Price of U.S. oil rises 0.3 percent
    * Bond prices fall across the yield curve

    By Fergal Smith
    TORONTO, July 4 (Reuters) - The Canadian dollar steadied
against its U.S. counterpart on Wednesday while holding near its
strongest level in nearly three weeks, as oil prices rose and
investors braced for a potential interest rate hike next week
from the Bank of Canada.
    At 3 p.m. EDT (1900 GMT), the Canadian dollar          was
trading nearly unchanged at C$1.3142 to the greenback, or 76.09
U.S. cents. 
    The price of oil, one of Canada's major exports, was driven
higher by a threat to supply from an Iranian commander and a
drop in U.S. crude inventories for a second week in a row.
    U.S. crude oil futures        rose 0.3 percent to $74.33 a
    "Right now we have many problems on the oil supply side ...
and we may see high prices for a few more months," said Hendrix
Vachon, senior economist at Desjardins.
    The higher price of oil and an expectation in the market
that the Bank of Canada will raise interest rates next week have
boosted the loonie, Vachon said.
    Money markets see about a 70 percent chance of a rate
increase at the July 11 announcement.           
    Expectations have been raised by hawkish comments last week
by Bank of Canada Governor Stephen Poloz and recent domestic
data that showed business optimism and stronger-than-expected
growth in Canada's economy.
    Independence Day celebrations in the United States
discouraged traders on Wednesday from taking big positions in
major currencies, not least until there is some clarity about
where the escalating U.S.-China trade tensions are heading.
Washington is due to impose tariffs on Chinese imports at the
end of the week.             
    Canada has its own trade dispute with the United States and
is also contending with slow-moving talks to revamp the North
American Free Trade Agreement.
    Also, reduced Canadian oil supplies after a production
problem at the Syncrude oil sands facility in Alberta could hurt
the country's economic growth in the third quarter.             
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 2.5 Canadian cents to
yield 1.909 percent and the 10-year             falling 17
Canadian cents to yield 2.158 percent.
    On Tuesday, the 10-year yield touched its highest intraday
level in more than two weeks, at 2.204 percent.
    Canada's employment report for June and trade data for May
are due out on Friday.

 (Reporting by Fergal Smith
Editing by Frances Kerry and Leslie Adler)
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