August 31, 2017 / 9:14 PM / in 3 years

CANADA FX DEBT-C$ jumps 1 percent as growth boosts bets on rate hike

    * Canadian dollar at C$1.2487, or 80.08 U.S. cents
    * Loonie hit weakest intraday since Aug. 18 at C$1.2663
    * Bond prices lower across much of the yield curve

    By Solarina Ho
    TORONTO, Aug 31 (Reuters) - The Canadian dollar surged more
than 1 percent against its U.S. counterpart on Thursday after
data showing the strongest economic growth rate in nearly six
years, boosting chances of another interest rate hike from the
Bank of Canada.
    Gross domestic product grew at an annualized 4.5 percent
pace in the second quarter, handily topping forecasts for 3.7
percent, as consumers continued to spend and energy exports
rose, data from Statistics Canada showed. Separate data showed
GDP grew 0.3 percent in June.             
    Chances of a rate hike as early as next week climbed to 37
percent from around 20 percent before the data, while investors
see a nearly 90 percent chance of a hike by October, data from
the overnight index swaps market showed.           
    "The probability for September shifted quite a bit," said
Shaun Osborne, chief currency strategist at Scotiabank, but he
cautioned that such a move could risk raising market
expectations about more rate hikes to come.
    "I don't think the Bank is going to put itself in a position
where the market thinks it's starting to get ahead of where the
Fed is," Osborne said.
    The central bank's policy rate sits at 0.75 percent, after
it was raised in July for the first time in nearly seven years.
    At 4:00 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2487 to the greenback, or 80.08 U.S. cents, up
1.1 percent.
    The currency's strongest level of the session was C$1.2481,
while it had touched its weakest since Aug. 18 before the data
at C$1.2663.
    Adding to support for the loonie, U.S. crude oil prices
rebounded after being pressured this week by Tropical Storm
Harvey, which knocked out about a quarter of U.S. refinery
    U.S. crude        prices settled up $1.27, or 2.76 percent,
at $47.23 a barrel.
    The U.S. dollar        softened against a basket of
currencies following lackluster U.S. economic data that failed
to boost expectations for another Federal Reserve rate increase
this year. Caution ahead of Friday's U.S. jobs report and
month-end investment flows also weighed.             
    Canadian government bond prices were mostly lower across the
yield curve, with the two-year            price down 7 Canadian
cents to yield 1.275 percent and the 10-year             falling
13 Canadian cents to yield 1.851 percent.
    The gap between the Canadian 2-year yield and its U.S.
equivalent narrowed by 4.3 basis points to a spread of -5.5
basis points, its narrowest since July 31.

 (Reporting by Fergal Smith and Solarina Ho; Editing by
Bernadette Baum and Tom Brown)
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