June 12, 2017 / 9:21 PM / 3 months ago

CANADA FX DEBT-C$ spikes 1 pct to near 8-week high as central bank eyes hike

 (Adds market commentary, details from Bank of Canada event,
updates prices)
    * Canadian dollar at C$1.3331, or 75.01 U.S. cents
    * Hits strongest level since April 18 after central bank
comments
    * Bond prices much lower across yield curve

    By Alastair Sharp
    TORONTO, June 12 (Reuters) - The Canadian dollar jumped
against its U.S. counterpart on Monday after a senior Bank of
Canada official raised the prospect that rising interest rates
could come sooner than anticipated, while higher oil prices
added further support.
    Senior Deputy Governor Carolyn Wilkins said first-quarter
growth was "pretty impressive" and that signs economic growth
was broadening would lead the central bank to consider whether
current low rates would still be required.             
    "It's quite the turn from hinting at cuts at the start of
the year to decidedly neutral to now pointing to hikes in the
forecast horizon," said Derek Holt, head of capital markets
economics at Scotiabank.
    The Canadian dollar reacted immediately to the release of
Wilkins' prepared remarks at 1:20 p.m. EDT (1720 GMT) and
continued to strengthen through the afternoon.
    At 4 p.m. EDT, the Canadian dollar          was trading at
C$1.3331 to the greenback, or 75.01 U.S. cents, up 1 percent.
    The currency hit C$1.3322 during the trading session, its
strongest level since April 18.
    Canadian government bond prices fell across the yield curve,
with the two-year            down 19.5 Canadian cents to yield
0.844 percent, and the 10-year             falling 57 Canadian
cents to yield 1.488 percent.
    The yield on the 2-year hit its highest since March while
the 10-year touched a more than two-week high.
    The central bank makes its next rate decision on July 12.
While many economists had expected the bank to start raising in
2018, markets had priced in a 56 percent chance of a hike by the
end of 2017 following Wilkins' speech. 
    The loonie, as the currency is known colloquially, had
touched its strongest since late May on Friday, when data showed
job growth accelerated in May at its fastest pace in eight
months.             
    Prices of oil, one of Canada's major exports, edged up on
signs of U.S. inventory declines and news that Saudi Arabia will
limit volumes of crude to some Asian buyers in July and deepen
cuts to the United States.      
    The U.S. dollar        dipped against a basket of major
currencies ahead of Wednesday's decision by the Federal Reserve
on U.S. interest rates, while the euro was lifted by election
results in France and Italy.                         
    The foreign exchange options market is showing much less
risk of a sharp drop in the Canadian dollar than before last
November's U.S. presidential election, which could spell bad
news for speculators who have heavily shorted the currency.
            

 (Reporting by Fergal Smith, editing by G Crosse)
  
 

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