CANADA FX DEBT-C$ firmer after October inflation data

Fri Nov 23, 2012 10:13am EST

* C$ at C$0.9956 to the US$, or $1.0044
    * Canada inflation higher than forecast, still tame
    * Bank of Canada rate increase seen a long way off
    * Rise in German business sentiment aids C$ rise

    By Alastair Sharp
    TORONTO, Nov 23 (Reuters) - The Canadian dollar firmed on
Friday after data showed consumer prices rose a bit more than
expected in October, though analysts cautioned inflation
pressures remain benign and interest rate increases are still a
long way off.
    The currency had touched a session high against the U.S.
dollar immediately after the release of the data, which showed
prices rose for almost all consumer items, but held below the
central bank's 2 percent target. 
    "What we have in Canada are inflation levels that are
well-contained and even though we saw the headline ticked up
slightly more than expected, core was fairly subdued," said
Camilla Sutton, chief currency strategist at Scotiabank.
    "Taken as a whole, I don't think this makes any material
change to expectations for the Bank of Canada."
    By late morning, the Canadian currency was at
C$0.9956 to the greenback, or $1.0044, up from C$0.9972, or
$1.0028 at Thursday's North American close.     
    Year-on-year inflation in October held steady at 1.2
percent, unchanged from September but above the 1.1 percent
forecast of market players. Core inflation, which strips out
prices for gasoline and other volatile items, was unchanged at
1.3 percent. Market players had forecast 1.2 percent core
inflation.
             
       
  
    "On the surface it could weigh on the currency, given that
it suggests the Bank of Canada will not be raising rates for a
while," said Sal Guatieri, senior economist at BMO Capital
Markets.
    Even so, overnight index swaps, which trade based on
expectations for the central bank's key policy rate, showed that
 traders increased their small bets on a rate hike in late 2013
slightly after the data was released. 
    Higher interest rates tend to support currencies by
attracting international capital flows.
    The Canadian dollar was also buoyed by a German business
survey that pointed to rising corporate optimism.
 
    The two-year bond was off 1 Canadian cent to
yield 1.113 percent, while the benchmark 10-year bond
 traded flat to yield 1.774 percent.
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