CANADA FX DEBT-C$ rises sharply after inflation data

Fri Mar 19, 2010 7:55am EDT
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 * Rises to C$1.0100 to the U.S. dollar after CPI data
 * Canada core inflation jumps above 2 pct, boosts C$
 * Bonds prices fall after inflation data
 By Jennifer Kwan
 TORONTO, March 19 (Reuters) - The Canadian dollar rose
sharply on Friday after data showed Canada's annual core
inflation rate unexpectedly rose in February, increasing
pressure on the Bank of Canada to raise interest rates.
 The Canadian dollar hit a session high of C$1.0100 or 99.01
U.S. cents, up from about C$1.0168, or 98.35 U.S. cents just
before the report.
 Canada's annual core inflation rate unexpectedly rose in
February to 2.1 percent from 2.0 percent in January. Core CPI
jumped 0.7 percent in the month, the biggest increase since
November 2008. [ID:N19500487]
 Markets had predicted the core rate would ease to 1.7
percent annually and climb 0.3 percent in the month, according
to a Reuters poll. ECONCA
 "It's a much bigger-than-expected increase in the core
measure which sends the year-over-year rate up even further
above the Bank of Canada's target, and above the Bank of
Canada's expectations. The odds are growing for more aggressive
policy tightening in the second half of this year," said Sal
Guatieri, senior economist at BMO Capital Markets.
 Guatieri said the focus will now turn to domestic retail
sales data, due at 8:30 a.m. (1230 GMT), which could be a spark
that propels the currency closer to parity with the U.S.
 This week, the currency raced up to C$1.0071 to the U.S.
dollar, or 99.30 U.S. cents, a near 20-month high.
 At 7:41 a.m., the Canadian currency was at C$1.0114 to the
U.S. dollar, or 98.87 U.S. cents, up from Thursday's finish at
C$1.0137 to the U.S. dollar, or 98.65 U.S. cents.
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, rose
after the report, showing the market saw tightening as more
likely than before the data.  BOCWATCH.
 Canadian bond prices sank across the curve on Friday,
moving lower after the inflation data.
 (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)