CANADA FX DEBT-C$ stronger as central bank holds to neutral tone
* Canadian dollar at C$1.1038 or 90.60 U.S. cents * Bank of Canada says still concerned about weak inflation * Bond prices mixed By Leah Schnurr and Alastair Sharp TORONTO, March 5 (Reuters) - The Canadian dollar strengthened against the greenback on Wednesday as the Bank of Canada held rates steady and struck a neutral tone in its policy statement, pushing some traders to unwind bets on further loonie weakness. The central bank kept a key rate at 1 percent and fretted about weak inflation while repeating that its next move on interest rates could be either up or down. While the bank avoided drastic change to its stance, the statement nonetheless challenged a creeping assumption among some strategists and traders that Canada could look to cut rates after years of holding steady. "The bets were just throwing Canada overboard. You're seeing some of those positions get unwound as they got ahead of themselves," said Brad Schruder, a director of foreign exchange sales at BMO Capital Markets. The Canadian dollar ended the session at C$1.1038 to the greenback, or 90.60 U.S. cents, stronger than Tuesday's close of C$1.1100, or 90.09 U.S. cents. It has been as weak as C$1.1225 so far this year, but Schruder said a decent jobs report on Friday could shift the currency's fair value to a C$1.0850 to C$1.1060 range. "It's not bullish Canada, but it's much less bearish," he said. Other strategists said the central bank had not changed its tone significantly since January, and that focus would be on economic data going forward. "At the end of the day, the bottom line is the same. Everything is data dependent, (and) on hold for the foreseeable horizon," said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto. He added that Friday's jobs and trade data would be the next chance for the currency to break out of its recent range. The Bank of Canada shifted to a more dovish policy stance last year and left the door open to a cut in interest rates in its January policy statement, saying it was concerned about the weak inflation environment. Separately, Quebec's separatist government moved to capitalize on a lead in the polls, launching a provincial election it hopes will result in a majority government that could eventually lead to a third referendum on independence from Canada. Markets were generally less nervous about geopolitical risk on Wednesday than they had been earlier in the week as the United States and Russia were set to hold talks on easing tension over Ukraine. Canadian government bond prices were mixed across the maturity curve, with the two-year off 0.1 Canadian cent to yield 1.035 percent and the benchmark 10-year up 2 Canadian cents to yield 2.468 percent.