* C$ hits session high of C$0.9941 vs US$, or $1.0059
* Canada Jan. inflation up more than expected
* Traders pare back bets of BoC rate cut
* Bond prices slip, underperform at short end
By Claire Sibonney
TORONTO, Feb 17 The Canadian dollar firmed
to a session high against the U.S. dollar on Friday after data
showed inflation in January rose more than expected, dampening
some market expectations of a rate cut by the Bank of Canada
later this year.
The annual rate increased to 2.5 percent in January from 2.3
percent in December on higher prices for energy and
transportation, Statistics Canada said.
The year-over-year increase was slightly greater than the
2.3 percent predicted by market operators, buoying the currency
to C$0.9941 against the greenback, or $1.0059, from
around C$0.9961, or $1.0039 immediately before the release.
"If anything this just reinforces that the next move in the
overnight rate is up, I mean it's not going to be for a while
but at least in terms of what's implied in terms of Bank of
Canada pricing over the (overnight index swap) market, I think
it's just going to scale back on the easing bias," said Mazen
Issa, Canada macro strategist at TD Securities.
Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the data,
traders reduced bets on a rate cut in the second half of 2012.
"We are not seeing aggressive pressures one way or the
other, so it just confirms the Bank of Canada's very neutral
stance at this point," said Mark Chandler, head of fixed income
and currency strategy at RBC Capital Markets.
At 7:53 a.m. (1253 GMT), the Canadian dollar stood at
C$0.9949 versus the U.S. dollar, or $1.0051, up from Thursday's
North American session close of C$0.9965 versus the U.S. dollar,
The Canadian dollar was already faring slightly better
heading into the inflation report, as global risk appetite was
helped by hopes Greece will seal a long-awaited bailout deal
Investors were expected to take more cues from U.S.
inflation data at 8:30 a.m.
"Generally the currency's been in a better mood recently
because of the stronger global equity markets we've seen," said
Doug Porter, deputy chief economist at BMO Capital Markets.
"The knee jerk reaction (to the domestic inflation data) is
going to be to push it slightly higher, but I don't think it's
going to have a lasting impact on the currency."
Canadian bond prices tracked U.S. Treasuries lower across
the curve, but underperformed on the interest-rate sensitive
Canada's two-year bond retreated 3 Canadian cents
to yield 1.091 percent. The 10-year bond dropped 24
Canadian cents to yield 2.057 percent.