CANADA FX DEBT-C$ firms on oil, bonds rise in safety bid

Fri Mar 18, 2011 8:20am EDT
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 * C$ rises to $1.0190
 * Bonds up as military action possible in Libya
 * Canada annual inflation rate eases in February
 * Bank of Canada confirms it took part in yen intervention
 TORONTO, March 18 (Reuters) - The Canadian dollar CAD=D4
firmed against the U.S. currency on Friday, taking tame
inflation data in stride, as the focus returned to Japan's
crisis and rising oil prices on a possible military action
against Libya.
 Market watchers were also digesting actions by the Group of
Seven rich nations to jointly intervene to weaken a soaring
yen. [ID:nL3E7EH3HN]
 In a move to calm financial markets grappling with
continued anxiety over the nuclear crisis in quake-ravaged
Japan, the Bank of Japan bought billions of dollars and were
backed up by action by European central banks. The Bank of
Canada confirmed it also took part. [ID:nTZOIEE7TJ]
 The currency held overnight gains as Canada's annual
inflation rate in February cooled to 2.2 percent from 2.3
percent in January, just below the consensus forecast of 2.3
percent, and the core rate fell to its lowest level on record
at 0.9 percent. [ID:nSCLIEE7AG]
 The Canadian dollar "will probably get buffeted by
geopolitical developments, particularly with things in the
Middle East," said Paul Ferley, assistant chief economist at
Royal Bank of Canada.
 Canada's currency, typically influenced by oil prices,
pushed higher as U.S. oil prices rose after the United Nations
approved military action to contain Libyan leader Muammar
Gaddafi, heightening geopolitical tensions in the oil-rich
Middle East. [O/R]
 At 8 a.m. (1200 GMT), the currency was at C$0.9814 to the
U.S. dollar, or $1.0190, up from Thursday's North American
session close at C$0.9863 to the U.S. dollar, or $1.0139.
 Government bonds were slightly higher in safe haven bid as
markets watched for developments in Libya. The two-year
Canadian government bond CA2YT=RR rose 2 Canadian cents to
yield 1.592 percent, while the 10-year bond CA10YT=RR gained
18 Canadian cents to yield 3.165 percent.
 The tame inflation data implies less need for a swift
interest rate hike, analysts said, and helped support the
interest-rate sensitive short-dated issues. Overnight index
swaps, which trade based on expectations for the key central
bank rate, showed traders scaled back bets for Bank of Canada
rate hikes in the coming months. BOCWATCH
 (Reporting by Ka Yan Ng; Editing by Padraic Cassidy)