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CANADA FX DEBT-C$ nears 8-month high on diverging U.S. and Canadian rate outlooks

Fergal Smith

outlooks@ (Adds strategist quote and details throughout; updates prices)

* Canadian dollar rises 0.1% against the greenback

* Canadian new home prices dip 0.1% in May

* Price of U.S. oil decreases 0.4%

* Canadian bond prices fall across a steeper yield curve

TORONTO, July 11 (Reuters) - The Canadian dollar firmed against its U.S. counterpart on Thursday, approaching last week's eight-month high, as investors focused on the less-dovish policy guidance coming from the Bank of Canada compared with that of the Federal Reserve.

At 4:16 p.m. (2016 GMT), the Canadian dollar was

trading 0.1% higher at 1.3062 to the greenback, or 76.56 U.S. cents. The currency, which last Thursday notched an eight-month high at 1.3038, traded in a range of 1.3042 to 1.3080.

The outlook for the U.S. dollar remained grim after

Federal Reserve Chair Jerome Powell's bleak comments on the U.S. economy, which bolstered expectations of an interest rate cut later this month. In contrast, the Bank of Canada made clear on Wednesday it had no intention of easing monetary policy even as it highlighted the risks that trade wars posed to the global economy. "If you look at the relative monetary policy, Canada versus the U.S., it still looks like divergence," said Erik Bregar, head of FX strategy at the Exchange Bank of Canada. Chances of an interest rate cut this year by the Bank of Canada were less than 35%, data from the overnight index swaps market showed. Over the same period, the market expects at least two rate cuts from the Fed. The price of oil, one of Canada's major exports, fell as OPEC forecast slower demand for its crude next year. U.S. crude

oil futures settled 0.4% lower at $60.20 a barrel.

New home prices in Canada declined 0.1% in May, after prices were flat for the previous three months, Statistics Canada said.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries, after data showed U.S. underlying consumer prices increased by the most in nearly 1-1/2 years in June.

The two-year fell 3 Canadian cents to yield1.602% and the 10-year was down 35 Canadian cents to

yield 1.623%.

(Reporting by Fergal Smith; Additional reporting by Levent Uslu; Editing by Peter Cooney)