CANADA FX DEBT-C$ firms on inflation data, but slips 0.3 pct on the week

Thu Apr 17, 2014 4:55pm EDT

* Canadian dollar at C$1.1013 or 90.80 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds analyst's comment, updates prices to close)
    By Alastair Sharp
    TORONTO, April 17 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday after data showed domestic
annual inflation was stronger than expected in March, boosted by
higher energy costs.
    The currency slipped 0.3 percent on the week, however,
despite a recent spate of solid economic data that has prompted
some analysts to predict that some strengthening might be on the
horizon for the Canadian dollar.
    "Canadian inflation numbers are clearly turning higher, and
the Bank of Canada will have no choice but to remove its easing
bias as the strength continues," said Adam Button, currency
analyst at ForexLive in Montreal. 
    The central bank's policy stance is officially neutral, a
position it confirmed on Wednesday, but its retreat from a
hawkish tilt late last year has led some to factor in the
possibility of a rate cut. 
    Button said the currency could strengthen to the low C$1.09s
in the next week or so, although such a move would be dependent
on a rise in commodity prices. Canada is a major exporter of
natural resources.
    U.S. oil prices rose on Thursday on positive jobs data south
of the border, while base metals prices also moved higher. 
 
    The loonie stuck to a tight range on Thursday and trading
was muted heading into the long weekend. Financial markets in
Canada are closed on Friday for the Good Friday holiday.
    Domestic annual inflation rate rose to 1.5 percent in March,
beating expectations for a 1.4 percent rise, while the less
volatile core measure edged up to 1.3 percent, as expected.
 
    "A little bit stronger than expected could put a little bit
more upward pressure on interest rates and maybe provide a
little bit of support for the Canadian dollar," said Paul
Ferley, assistant chief economist at Royal Bank Of Canada in
Toronto.
    The Canadian dollar ended the session at C$1.1013
to the greenback, or 90.80 U.S. cents, just stronger than
Wednesday's close of C$1.1018, or 90.76 U.S. cents. It was at
C$1.0979, or 91.08 U.S. cents, last Friday.
    The inflation report came a day after the Bank of Canada
flagged its concerns about a weak inflation environment, even as
it forecast inflation will pick up this year. The bank kept its
benchmark interest unchanged at 1.0 percent on Wednesday as it
has done since September 2010. 
    "It is a bit of a precarious situation for the bank to be in
because they do want to stay sidelined for an extended period of
time," said Mazen Issa, senior Canada macro strategist at TD
Securities in Toronto.
    "The acceleration in inflation is occurring, we definitely
do think that inflation troughed in the last quarter of last
year, so they're going to have to tread a little bit carefully
now in terms of their communication."
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 4 Canadian
cent to yield 1.075 percent and the benchmark 10-year
 was also off 49 cents to yield 2.445 percent.

 (Additional reporting by Solarina Ho and Leah Schnurr; Editing
by Peter Galloway)
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