CANADA FX DEBT-C$ strengthens as oil prices rebound
* Canadian dollar at C$1.2882, or 77.63 U.S. cents * Bond prices mixed across the maturity curve By Fergal Smith TORONTO, June 17 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as a selloff in oil and stocks ahead of Britain's EU membership vote next week abated, although gains for the loonie stalled as domestic data showed inflation slowed. Canada's annual inflation slowed in May to 1.5 percent from a rate of 1.7 percent in April, with prices for gasoline and food accounting for most of the change, Statistics Canada said. The annual core inflation rate was 2.1 percent, down from 2.2 percent in April. Still, the core inflation rate remained above the Bank of Canada's target of 2 percent, which suggests the central bank should not be cutting interest rates, said Richard Gilhooly, head of rates strategy at CIBC Capital Markets. "We think that's their inclination anyway because they don't want to be getting into the negative rates scenario ... obviously policy has shifted to fiscal away from monetary and its going to remain that way," Gilhooly said. At 9:31 a.m. EDT (1331 GMT), the Canadian dollar was trading at C$1.2882 to the greenback, or 77.63 U.S. cents, stronger than Thursday's close of C$1.2961, or 77.15 U.S. cents. The currency's strongest level of the session was C$1.2873, while its weakest was C$1.2967. European shares and oil rose after a tumultuous week and as campaigning for Britain's EU membership referendum next week was suspended after the killing of a pro-"Remain" politician. U.S. crude prices were up 2.38 percent at $47.31 a barrel. Canadian government bond prices were mixed across the maturity curve, with the two-year price up 0.5 Canadian cent to yield 0.509 percent and the benchmark 10-year falling 2 Canadian cents to yield 1.109 percent. Canada's 10-year yield moved 2.1 basis points further below the equivalent maturity U.S. yield, leaving the spread at -47.7 basis points, as Treasuries underperformed on a reduced safe-haven bid. (Reporting by Fergal Smith; Editing by Bernadette Baum)
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