June 13, 2017 / 1:55 PM / 7 months ago

C$ notches a nine-month high on higher oil prices, domestic growth

TORONTO (Reuters) - The Canadian dollar strengthened on Friday to a 9-month high against its U.S. counterpart, boosted by higher oil prices and domestic growth which supported the Bank of Canada’s more hawkish stance.

Canada’s economy expanded by 0.2 percent in April after a 0.5 percent increase in March, Statistics Canada said. The gain matched analysts’ estimates.

It leaves the economy on track to grow at a 2.5 percent pace in the second quarter, which is “more than enough to justify the recent change in tone from the Bank of Canada,” Avery Shenfeld, chief economist at CIBC Capital Markets said in a research note.

Hawkish comments earlier this week from Bank of Canada Governor Stephen Poloz have raised expectations for an interest rate hike as early as next month.

Chances of a Bank of Canada rate hike in July have increased to one-in-two from just 20 percent after subdued inflation data last week, data from the overnight index swaps market shows.

Oil prices climbed for a seventh straight session in their longest bull run since April but were still set for the worst first-half performance since 1998.

U.S. crude prices were up 0.87 percent at $45.32 a barrel.

At 9:14 a.m. ET (1314 GMT), the Canadian dollar was trading at C$1.2991 to the greenback, or 76.98 U.S. cents, up 0.1 percent.

The currency’s weakest level of the session was C$1.3011, while it touched its strongest since Sept. 9 at C$1.2947.

Investors will digest the Bank of Canada’s business outlook report, due for release at 10:30 a.m. ET (1430 GMT). An improvement in business investment or sales expectations would underscore the central bank’s recent shift to a more hawkish stance.

Canadian government bond prices were lower across a steeper yield curve. Global bond markets have been pressured this week by the likelihood that central banks will become less accommodative.

The two-year price dipped 0.5 Canadian cent to yield 1.083 percent and the 10-year declined 26 Canadian cents to yield 1.737 percent.

The gap between the 2-year yield and its U.S. equivalent narrowed by 1 basis point to a spread of -28.3 basis points, its narrowest since Nov. 10, as Canadian bonds underperformed.

Reporting by Fergal Smith

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