August 17, 2018 / 1:57 PM / 3 months ago

CANADA FX DEBT-C$ gains as accelerating inflation raises rate hike prospects

    * Loonie strengthens 0.56 pct vs greenback
    * July inflation higher than expected 
    * 10-year yield rises to 2.262 percent

    By James Thorne
    NEW YORK, Aug 17 (Reuters) - The Canadian dollar gained
against its U.S. counterpart on Friday after the country's
annual inflation rate accelerated by more than expected,
increasing prospects that the Bank of Canada might raise
interest rates next month.
    Canada's annual inflation rate rose 3 percent in July versus
2.5 percent the previous month as energy prices climbed.
Economists polled by Reuters had forecast 2.5 percent annual
inflation.             
    At 9:35 a.m. EDT (1335 GMT), the Canadian dollar         
was trading 0.56 percent higher at C$1.3078 to the greenback, or
0.7644 U.S. cents. On Monday, it neared a three-week low of
C$1.3179.
    "With that size of a shock, (the Canadian dollar) probably
should have moved more," said Greg Anderson, global head of
foreign exchange strategy at BMO Capital Markets in New York.
    "This really does raise the possibility of the Bank of
Canada raising rates in September again."
    Money markets expect the central bank to hike its benchmark
interest rate, which sits at 1.50 percent, once more by
December.           
    The CPI data came a day after a report from Statistics
Canada that showed Canadian factory sales grew by 1.1 percent in
June from May, a positive sign for manufacturing.             
    Markets remained broadly bullish on the U.S. dollar amid
uncertainty around trade, Anderson said.
    U.S. Trade Representative Robert Lighthizer on Thursday said
he hoped there would be a breakthrough in NAFTA trade talks in
the next few days.                 
    The 10-year yield             rose to 2.262 percent, from
2.256 percent late on Thursday. 

 (Reporting by James Thorne
Editing by Susan Thomas)
  
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