March 23, 2018 / 8:45 PM / 5 months ago

CANADA FX DEBT-C$ rallies as hotter inflation boosts rate hike chances

 (Adds strategist quotes and details throughout on market
activity; updates prices)
    * Canadian dollar at C$1.2873, or 77.63 U.S. cents
    * Loonie touches its strongest since March 12 at C$1.2824
    * Oil rises 2.5 percent
    * Bond prices lower across a flatter yield curve

    By Fergal Smith
    TORONTO, March 23 (Reuters) - The Canadian dollar
strengthened to an 11-day high against the greenback on Friday
as oil prices rose and hotter-than-expected domestic inflation
data raised prospects of a further Bank of Canada interest rate
hike as soon as next month.
    The annual inflation rate rose to 2.2 percent, a three-year
high, from 1.7 percent in January. Economists had forecast a
rate of 2.0 percent.             
    The Bank of Canada's three measures of core inflation also
all strengthened.
    "Clearly we had a big bid for the Canadian dollar on the
back of that CPI print," said Christian Lawrence, senior market
strategist at Rabobank. "The move in CAD is about more (chance)
of a hike being priced in for the April meeting."
    The Bank of Canada has raised rates three times since July
even as it worried about a more uncertain trade outlook. Chances
of a hike in April rose to more than 40 percent from 35 percent
on Thursday, the overnight index swaps market indicated.
          
    Still, separate data showing a weaker-than-expected 0.3
percent rise in January retail sales added to the picture of a
domestic economy that has lost some momentum in recent months.  
 
    The price of oil, one of Canada's major exports, rose on
prospects of extended supply cuts by major producers. U.S. crude
oil futures        settled 2.5 percent higher at $65.88 a
barrel.             
    Speculators raised bullish bets on the Canadian dollar for
the first time in six weeks, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed. As
of March 20, net long positions had increased to 24,560
contracts from 19,420 a week earlier.
    At 4 p.m. ET (2000 GMT), the Canadian dollar          was
trading 0.5 percent higher at C$1.2873 to the greenback, or
77.63 U.S. cents. The currency touched its strongest since March
12 at C$1.2824.
    The U.S. dollar        hovered near a one-month low against
a basket of major currencies as investors worried about
escalating trade tensions between the United States and China.
            
    Canada's commodity-linked economy could be hurt if global
trade slowed. But the loonie has benefited this week from
optimism about a deal to revamp the North American Free Trade
Agreement. For the week, the loonie rose 1.8 percent, its
biggest gain since September.
    Canadian government bond prices were lower across a flatter
yield curve, with the two-year            down 6 Canadian cents
to yield 1.857 percent and the 10-year             falling 14
Canadian cents to yield 2.196 percent.

 (Additional reporting by Susan Taylor
Editing by Nick Zieminski and Sandra Maler)
  
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