CANADA FX DEBT-Loonie bounces after rout as inflation rises
* Canadian dollar at C$1.1078 or 90.27 U.S. cents * Bond prices mixed across the maturity curve By Leah Schnurr TORONTO, Jan 24 (Reuters) - The Canadian dollar firmed against the greenback on Friday, bouncing back from a 4-1/2-year low in the previous session after data showed Canada's annual inflation rate rose in December. The inflation rate was 1.2 percent on an annualized basis last month, slightly lower than the 1.3 percent analysts had predicted, but up from 0.9 percent in November. Core inflation - which strips out volatile items and is closely watched by the Bank of Canada - edged up to an annualized 1.3 percent as expected from 1.1 percent in November. The inflation report had garnered more attention from markets than usual after the Bank of Canada earlier in the week said it was more worried about persistently low inflation than it was three months ago. The stabilization in the loonie, which has been one of the underperformers among major currencies in 2014, came in the midst of a flight from risky assets that hit emerging market currencies. "The Canadian dollar held up remarkably well overnight when there was a wave of risk-off sentiment that drove the likes of the Australian dollar lower," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. The Canadian dollar was at C$1.1078 to the greenback, or 90.27 U.S. cents, stronger than Thursday's close of C$1.1099, or 90.10 U.S. cents. The Canadian dollar tumbled to its lowest level since July 2009 on Thursday in the wake of dovish comments from the Bank of Canada earlier in the week. Expectations the central bank could become more accommodative have weighed heavily on the currency of late, with the greenback appreciating by more than 4 percent against the loonie in the first three weeks of the year. As well as flagging the weak inflation environment, the Bank of Canada on Wednesday noted the stimulative impact on exports from the Canadian dollar's recent depreciation, though the central bank also said the currency was still strong and that its strength still posed an obstacle to exports. Some of Friday's snap-back could be due to some profit-taking and investors covering their short positions in the Canadian dollar, said Osborne, but he doesn't think the trend of the weaker loonie is over yet. "We may settle into something of a range until we determine the next move, but with the Bank leaning dovishly and Governor Poloz making it very, very, very clear to markets that he's not unhappy with the weakness in the Canadian dollar, I still rather think we've got a ways to go on this journey yet before we see the Canadian dollar stabilize." Canadian government bond prices were mixed across the maturity curve, with the two-year up half a Canadian cent to yield 0.966 percent, its lowest level since May 2013. The benchmark 10-year was up 11 Canadian cents to yield 2.391 percent.
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