CANADA FX DEBT-C$ makes modest gains; focus on Bank of Canada
* Canadian dollar at C$1.2496 or 80.03 U.S. cents * Bond prices mixed across the maturity curve By Solarina Ho TORONTO, Feb 27 (Reuters) - The Canadian dollar was firmer against the greenback on Friday, tracking moderate gains in crude prices, with the market primarily focused on the Bank of Canada, which will announce an interest rate decision next week. Canadian inflation data this week supported the latest view that the central bank will not cut rates again next week, following its surprise 25-basis-point cut in January. Markets had widely priced in a 70 percent, or more, chance of another rate cut, but that has fallen to about 25 percent following a speech earlier this week by bank Governor Stephen Poloz. In the speech, Poloz said last month's rate cut had bought the central bank time to see how the economy adjusts to the plunge in the price of oil, a major Canadian export. "Poloz's speech this week ... shifted expectation quite dramatically," said Greg Moore, senior currency strategist at RBC Capital Markets. He added, however, that it is unlikely that the Canadian dollar has hit its weakest level. "If the Bank of Canada very clearly leaves the door open for a cut still in coming meetings, that could actually be negative for the currency next week." The Canadian dollar was at C$1.2496 to the greenback, or 80.03 U.S. cents, at around 9:29 a.m. EST (1429 GMT), stronger than Thursday's close of C$1.2527, or 79.83 U.S. cent. Crude oil futures rebounded on Friday following Thursday's tumble, supported by strong investor inflows, a strengthening demand outlook and supply outages. Moore said day-to-day moves in the loonie are still tightly linked to oil prices, whose moves recently have been broadly sideways. This matches trading in USD/CAD, which has been choppy, but still range-bound, he added. The Canadian dollar tumbled some 20 percent between June and January, tracking the plunge in crude prices. Since hitting C$1.28 at the end of January, its weakest level in nearly six years, the loonie has traded between C$1.2353 and C$1.2697. Canadian government bond prices were mixed across the maturity curve. The two-year rose half a Canadian cent to yield 0.503 percent and the benchmark 10-year edged down 1 Canadian cent to yield 1.355 percent. (Reporting by Solarina Ho; Editing by Peter Galloway)
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