C$ strengthens on higher oil prices, solid retail sales data

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened on Thursday against its U.S. counterpart, boosted by higher oil prices and stronger-than-expected domestic retail sales data, while the country's largest alternative lender got a loan from Berkshire Hathaway Inc (BRKa.N).

Canadian retail sales rose 0.8 percent in April from March to C$48.64 billion. Analysts had forecast an increase of 0.2 percent.

"The solid run of Canadian data continues," Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said in a research note. "There's nothing here to alter the Bank of Canada's now more hawkish path."

The Bank of Canada's top two officials said last week that looser monetary policies put in place in 2015 had largely done their work, and the bank would assess whether interest rates must remain at near-record lows.

Chances of a rate hike as early as next month rose to 38 percent from less than one-in-four before the retail sales report, data from the overnight index swaps market showed. Traders have already priced in a rate hike for 2017.

Oil, one of Canada's major exports, edged up from multi-month lows, but prices remained under pressure from a supply glut that has persisted despite the Organization of the Petroleum Exporting Countries' efforts to balance the market. [O/R]

U.S. crude was up 0.49 percent at $42.74 a barrel.

At 9:14 a.m. EDT, the Canadian dollar was up 0.6 percent at C$1.3260 to the greenback, or 75.41 U.S. cents.

The currency traded between C$1.3247 and C$1.3338. On Wednesday, it touched a nine-day low of C$1.3348.

Home Capital Group Inc (Toronto:HCG.TO - News), which nearly collapsed in April, said billionaire Warren Buffett's Berkshire Hathaway would provide a new C$2 billion line of credit to its Home Trust Co unit.

Bearish bets on the Canadian dollar had reached a record high in May as investors worried that the alternative lender's troubles could hurt the country's red-hot housing market.

Canadian government bond prices were lower across much of a flatter yield curve, with the two-year down 5 Canadian cents to yield 0.939 percent and the 10-year falling 4 Canadian cents to yield 1.495 percent.

The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 3.7 basis points to a spread of -40.4 basis points, its smallest since Feb. 24.

Canadian inflation data for May is due on Friday.

(Reporting by Fergal Smith; Editing by Lisa Von Ahn)