CANADA FX DEBT-C$ rallies on "more hawkish" Bank of Canada
* C$ rises as high as C$0.9915 vs US$, or US$1.0086 * BoC leaves rates on hold, but more upbeat * Greek bond swap hopes boost sentiment * Bond prices mostly lower By Claire Sibonney TORONTO, March 8 (Reuters) - The Canadian dollar rallied against the U.S. dollar on Thursday after the Bank of Canada sounded more upbeat about the outlook for the Canadian and global economies, suggesting it is starting to think about an eventual rate hike. As anticipated, the central bank kept its overnight lending rate target at an ultra-low 1 percent for the 12th straight time. But the market reacted to a more hawkish tone in the bank's statement by paring back its bet on a rate cut, and by raising its bet on a rate increase by the end of 2012. The median forecast of global economists and strategists in a Reuters survey last week was that the Bank of Canada would not increase rates until the second quarter of 2013. The currency rose as high as C$0.9915 versus the greenback, or $1.0086, following the announcement from C$0.9955, or $1.0045, immediately before the bank's statement. "All in all, I think it is less dovish than our January statement and that should be positive for CAD and suggests that maybe the Bank of Canada will tighten policy slightly ahead of schedule, but that's still a 2013 story. It's not a 2012 story," said Camilla Sutton, chief currency strategist at Scotia Capital. "(The bank statement) shows a little bit more of a hawkish bent. It's not enough to change their official bias," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets. At 9:43 a.m. (1443 GMT), the Canadian dollar stood at C$0.9929 against the greenback, or $1.0072, up from Wednesday's North American session close of C$0.9982, or $1.0018. The currency was already on firmer ground heading into the bank's statement, taking heart from signs that Greece would complete a private debt swap to avoid a chaotic default and that the U.S. economy would deliver more upbeat news. New U.S. claims for unemployment benefits unexpectedly rose last week, a government report showed on Thursday, but not enough to change perceptions that the labor market is strengthening. Canada's commodities-linked currency was also supported by a rise in oil prices, with U.S. crude futures topping $106 a barrel. Markets however are expected to remain on edge ahead of the formal announcement on the Greek deal, as well as Friday's keenly watched U.S. and Canadian monthly employment reports. Canadian bond prices were mostly lower, underperforming on the interest-rate sensitive short end of the curve. The two-year bond added to losses, down 6 Canadian cents to yield of 1.154, while the 10-year bond dropped 22 Canadian cents to yield 1.993 percent.
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