CANADA FX DEBT-C$ recovers from 3-week low after Bank of Canada rate decision
* Canadian dollar at C$1.0746 or 93.06 U.S. cents * Bond prices higher across the maturity curve (Adds quotes, details, updates prices) By Leah Schnurr TORONTO, July 16 (Reuters) - The Canadian dollar firmed modestly against the greenback on Wednesday after the Bank of Canada stayed neutral on the next move for interest rates in a statement that was largely what the market had expected. The central bank shrugged off a recent surge in inflation as temporary, warned the economy does not yet have enough steam and reiterated it could just as easily cut rates as raise them. The Bank of Canada also held rates at 1 percent. The announcement from the central bank was the key domestic event of the week and had been highly anticipated by investors wanting to see how policymakers would address the surprisingly strong inflation data released last month. While the statement initially sent the loonie to a more than three-week low, the currency managed to reverse course by midday. Comments from Bank of Canada Governor Stephen Poloz that the Canadian dollar is a very important variable in export growth were also taken in stride by the market. "There were no surprises for the market, really," said Ken Wills, currency strategist and broker at CanadianForex in Toronto. He noted that the bounce in the loonie was likely a "case of sell the rumor, buy the fact." The Bank of Canada shifted policy gears last October when it dropped any mention of tightening on the horizon. Since then, the central bank has said it holds a neutral stance, though some in the market have viewed it as tilting toward dovish. Analysts said the tone of the statement and Poloz's subsequent press conference was not as dovish as some in the market had feared. "That may be the only surprise that the market is digesting right now, that most of his comments seemed much more neutral, where previously it was a neutral stance, but dovish comments," said Wills. The Canadian dollar ended the North American session at C$1.0746 to the greenback, or 93.06 U.S. cents, slightly stronger than Tuesday's close of C$1.0758, or 92.95 U.S. cents. The loonie saw little reaction to data earlier on Wednesday that showed the value of Canadian factory sales jumped by 1.6 percent in May, more than economists had expected. Attention will now start to turn to Friday's inflation report. Annualized inflation is forecast to hold at 2.3 percent in June. "I think the market is really going to focus on Friday's CPI numbers to get a better sense of if we can really trust what the Bank of Canada is saying in terms inflation - are these inflation numbers really transitory?" said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary. Canadian government bond prices were higher across the maturity curve, with the two-year up 1.8 Canadian cents to yield 1.090 percent and the benchmark 10-year up 14 Canadian cents to yield 2.200 percent. (Editing by Diane Craft)
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