CANADA FX DEBT-C$ notches 5-month high as oil rallies, greenback slides

    * Canadian dollar rises 0.9% against the greenback
    * Loonie touches its strongest since Jan. 3 at 1.3151
    * Price of oil increases 4.6%
    * Canada-U.S. 2-year spread at narrowest since February 2018

    TORONTO, June 20 (Reuters) - The Canadian dollar
strengthened to a five-month high against its U.S. counterpart
on Thursday as oil prices climbed and the greenback was
pressured by the prospect of interest rate cuts by the Federal
    The U.S. dollar        sank against a basket of currencies
and is on track for its biggest two-day drop in a year after the
Fed signaled it was ready to cut interest rates as early as next
    The price of oil, one of Canada's major exports, jumped
after Iran shot down a U.S. military drone, raising fears of a
military confrontation between Tehran and Washington. U.S. crude
oil futures        were up 4.6% at $56.21 a barrel.             
    At 9:38 a.m. (1338 GMT), the Canadian dollar          was
trading 0.8% higher at 1.3180 to the greenback, or 75.87 U.S.
cents. The currency touched its strongest intraday level since
Jan. 3 at 1.3151.
    Canada lost 16,000 jobs in May, the first decline in three
months, as hiring fell in the construction sector, according to
a report from ADP.             
    Still, data on Wednesday showing that the annual rate of
Canadian inflation climbed to a seven-month high in May could
help fend off interest rate cuts from the Bank of Canada.
    Meanwhile, Mexican President Andres Manuel Lopez Obrador
said it was now up to Canada and the United States to ratify the
United States-Mexico-Canada Agreement (USMCA) after Mexico's
Senate approved the trade deal on Wednesday.
    Canada sends about 75% of its exports to the United States,
so its economy could benefit if all three countries ratify the
new North American trade pact.
    Canadian government bond prices were mixed across a steeper
yield curve, with the two-year            flat to yield 1.392
percent and the 10-year             falling 8 Canadian cents to
yield 1.432%.
    The gap between Canada's 2-year yield and its U.S.
equivalent narrowed by 4.8 basis points to a spread of 32.6
basis points in favor of the U.S. bond, its smallest gap since
February last year.

 (Reporting by Fergal Smith
Editing by Chizu Nomiyama)