CANADA FX DEBT-C$ firms as inflation rate picks up

Fri May 23, 2014 4:17pm EDT

* Canadian dollar at C$1.0870, or 92.00 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, May 23 (Reuters) - The Canadian dollar firmed
against the greenback on Friday after data showed the domestic
annual inflation rate picked up as expected in April, though the
currency was still confined to its recent trading range.
    So far in May, the Canadian dollar has largely moved
sideways as analysts weigh generally improving economic data
against the Bank of Canada's neutral policy stance. The central
bank shifted away from its hawkish bias last October, an action
that has pressured the loonie.
    The Bank of Canada has expressed concern about low
inflation, but Friday's data showed the annual rate rose in
April to the central bank's 2 percent target for the first time
in two years. 
    "I think what we're seeing here is a little bit of optimism
from the loonie bulls that we might see Governor Poloz change
his tone a little bit at the next meeting," said Scott Smith,
senior market analyst at Cambridge Mercantile Group in Calgary.
    "I think we're getting to a point where Poloz can't really
be as dovish as he has in the past, so we're starting to see
that influence the loonie's trading pattern."
    The Bank of Canada will issue its next policy statement in
early June.
    The Canadian dollar ended the North American
session at C$1.0870 to the U.S. dollar, or 92.00 U.S. cents,
stronger than Thursday's close of C$1.0893, or 91.80 U.S. cents.
    While the data was positive for the Canadian dollar, a
substantially stronger currency would likely be met with
pushback from the Bank of Canada, said Camilla Sutton, chief
currency strategist at Scotiabank in Toronto. The central bank
is hoping to see the export sector pick up.
    "So all in all, we're likely to see the Canadian dollar
trade in a fairly tight range," said Sutton. "I think we're
either side of C$1.10. We're sitting a little bit stronger than
that right now, but I think we'll be either side of C$1.10 for
the next couple of months."
    Heading into the weekend, investors were also monitoring
tensions in Ukraine before a presidential election on Sunday.
Armed pro-Russian separatists and a Ukrainian militia group
clashed in the east of Ukraine on Friday. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 0.7 of a
Canadian cent to yield 1.054 percent and the benchmark 10-year
 up 19 Canadian cents to yield 2.307 percent.

 (Additional reporting by Andrea Hopkins; Editing by James
Dalgleish)
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