March 15, 2017 / 9:28 PM / 6 months ago

CANADA FX DEBT-C$ jumps as Fed strikes cautious tone, oil rallies

 (Adds strategist comment, updates prices to close)
    * Canadian dollar settles at C$1.3307, or 75.15 U.S. cents
    * Sharpest C$ gain vs US$ in a year
    * Bond prices higher across the yield curve, spread narrows

    By Alastair Sharp
    TORONTO, March 15 (Reuters) - The Canadian dollar
strengthened by the most in a year against its U.S. counterpart
on Wednesday as oil prices rallied and the U.S. Federal Reserve
raised interest rates but signaled a cautious tone toward
further increases.
    "The Canadian dollar got a double shot of good news, one
from the Fed and another from the first drop in U.S. oil
inventories of 2017," said Adam Button, a currency analyst at
ForexLive in Montreal. 
    "Bets against the Canadian dollar were very crowded in the
last week as oil began to crack, and it's a race to the exits,"
he added.
    The Canadian dollar          settled at C$1.3307 to the
greenback, or 75.15 U.S. cents, much stronger than Tuesday's
close of C$1.3485, or 74.16 U.S. cents.
    It was the loonie's sharpest one-day move since March 16,
2016, and pushed the currency to its strongest level in two
weeks.
    Oil prices climbed for the first time in more than a week on
a surprise drawdown in U.S. crude inventories and data from the
International Energy Agency suggesting that OPEC cuts could
create a crude deficit in the first half of 2017.      
    Oil is one of Canada's major exports.
    The Fed raised interest rates for the second time in three
months, spurred by steady economic growth, strong job gains and
confidence that inflation is rising to the central bank's
target, but it signaled a more gradual pace of monetary
tightening this year than many in the market anticipated. 
    In domestic data, household debt as a share of income rose
to a record in the fourth quarter, data from Statistics Canada
showed in a report likely to underscore concerns that consumers
are becoming overly indebted.             
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 9.5 Canadian cents to
yield 0.804 percent and the 10-year             rising 61
Canadian cents to yield 1.762 percent.
    The two-year yield was 2.7 basis points closer to its U.S.
equivalent, with the spread narrowing to -49.9 basis points.
Earlier in March, it had touched its widest gap since January
2016 at -55.2 basis points.        

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski and Leslie Adler)
  
 

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