August 22, 2018 / 7:35 PM / in 2 years

CANADA FX DEBT-C$ notches two-week high on positive NAFTA signs

 (Adds strategist quotes and details on activity throughout,
updates prices)
    * Canadian dollar at C$1.3005, or 76.89 U.S. cents
    * Loonie touches its strongest since Aug. 7 at C$1.2988
    * Price of U.S. oil rises 3.1 percent
    * Gap between 2- and 10-year yields hits narrowest in 11

    By Fergal Smith
    TORONTO, Aug 22 (Reuters) - The Canadian dollar strengthened
to a two-week high against its U.S. counterpart on Wednesday, as
higher oil prices and signs of progress in negotiations to
revamp the NAFTA trade pact offset domestic data for June
showing a drop in retail sales.
    Agreement between Mexico and the United States on
outstanding bilateral issues in renegotiating the North American
Free Trade Agreement could be just a few hours away, Mexican
officials said.                 
    The news on NAFTA, which also includes Canada, is raising
expectations that the three parties can reach a deal before U.S.
congressional elections in November, said Karl Schamotta,
director global markets strategy at Cambridge Global Payments
    "That is helping to boost flows into Canada and helping to
remove some of the risk premium that has been attached to the
Canadian dollar," Schamotta said.
    Canada sends about 75 percent of its exports to the United
States, so its economy could be hurt if NAFTA is scrapped.
    The price of oil, one of Canada's major exports, surged
after U.S. government data showed a larger-than-expected draw in
domestic crude inventories and as Washington's sanctions on Iran
signaled tightening supplies.             
    U.S. crude oil futures        settled 3.1 percent higher at
$67.86 a barrel.
    At 3:04 p.m. (1904 GMT), the Canadian dollar          was
trading 0.3 percent higher at C$1.3005 to the greenback, or
76.89 U.S. cents. The currency touched its strongest level since
Aug. 7 at C$1.2988.    
    Canadian retail trade fell 0.2 percent in June, short of the
0.1 percent gain that economists had predicted, as sales at
gasoline stations and motor vehicle and parts dealers fell,
Statistics Canada said.             
    But the dip in sales, which compared with an upwardly
revised 2.2 percent increase in the prior month, had little
impact on money market expectations for a Bank of Canada
interest rate increase as soon as next month. Chances of a
September hike, which were boosted on Friday by
hotter-than-expected inflation data, remained at more than 40
percent, the overnight index swaps market showed.           
    Canadian government bond prices were mixed across a flatter
yield curve, with the 10-year             rising 3 Canadian
cents to yield 2.254 percent.
    The gap between the two-year and 10-year yields shrank by
1.4 basis points to a spread of 14.5 basis points, its narrowest
since November 2007.

 (Reporting by Fergal Smith; Editing by Steve Orlofsky and Peter
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