October 15, 2018 / 7:47 PM / a month ago

CANADA FX DEBT-C$ rallies as business optimism backs further rate hikes

 (Updates prices)
    * Canadian dollar rises 0.2 percent against greenback
    * Loonie touches its strongest since Oct. 10 at 1.2955
    * Bank of Canada survey shows business optimism near record
levels
    * Resales of Canadian homes dip 0.4 percent in September

    By Fergal Smith
    TORONTO, Oct 15 (Reuters) - The Canadian dollar strengthened
to its highest in five days against its U.S. counterpart on
Monday, after a quarterly business survey by the Bank of Canada
supported bets for another interest rate hike from the central
bank as soon as next week.
    Canadian business optimism remained at near-record levels in
the third quarter as companies reported rising pressure on
capacity, labor and prices amid signs of stronger sales, the
Bank of Canada said.             
    The central bank has hiked interest rates four times since
July 2017 to leave its policy rate at 1.50 percent. Chances of
another hike at the Oct. 24 announcement stayed at nearly 90
percent after the data, the overnight index swaps market
indicated.               
    "It supports the outlook for higher rates in Canada and
particularly toward the end of this month," said Shaun Osborne,
chief currency strategist at Scotiabank. "The fact that we got
such a positive read, particularly on business investment,
before there was clarity on the trade outlook, I think was quite
encouraging."
    All the interviews were carried out before Canada and the
United States struck a deal on Sept. 30 on a new trade pact with
Mexico.             
    At 3:18 p.m. (1918 GMT), the Canadian dollar          was
trading 0.2 percent higher at 1.2990 to the greenback, or 76.98
U.S. cents. The currency touched its strongest level since Oct.
10 at 1.2955.
    Last week, the loonie declined 0.6 percent as worries over
higher bond yields and the impact of trade tariffs contributed
to volatility in global financial markets.    
    Still, speculators have cut bearish bets on the Canadian
dollar to the lowest since March, data from the U.S. Commodity
Futures Trading Commission and Reuters calculations showed on
Friday. As of Oct. 9, net short positions had decreased to
12,145 contracts from 18,484 a week earlier.
    The price of oil, one of Canada's major exports, was
supported by geopolitical tension over the disappearance of a
Saudi journalist that has stoked worries about supplies from the
world's top crude exporter.             
    U.S. crude oil futures        settled 0.6 percent higher at
$71.78 a barrel.
    Resales of Canadian homes dipped 0.4 percent in September
from August, the first decline since April, the Canadian Real
Estate Association said.             
    Canadian government bond prices were lower across a flatter
yield curve, with the 10-year             falling 5 Canadian
cents to yield 2.506 percent.

 (Reporting by Fergal Smith; Editing by Susan Thomas and Peter
Cooney)
  
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