CANADA FX DEBT-Strong Canada inflation sends C$ to session high

Fri Feb 17, 2012 8:11am EST
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* 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 (Reuters) - 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.   Continued...