CANADA FX DEBT-C$ pushed higher by inflation data

Fri Nov 18, 2011 8:14am EST
 
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 * C$ higher at C$1.0208 to the US$, or 97.96 U.S. cents
 * Canadian inflation eases, but not as much as expected
 * Bonds retreat across curve
 By Jennifer Kwan
 TORONTO, Nov 18 (Reuters) - The Canadian dollar firmed to a
session high against the U.S. currency on Friday after data
showed Canada's October inflation rate came in higher than
forecast, curbing market bets on an interest rate cut.
 The consumer price index rose 2.9 percent in October from a
year earlier, easing from 3.2 percent in September as gasoline
prices rose at a slower year-on-year pace.
 The core inflation rate, closely watched by the central
bank because it excludes some volatile items, eased to 2.1
percent from 2.2 percent in the previous month. Markets had
forecast, on average, slightly lower rates for total CPI and
core CPI of 2.8 percent and 1.9 percent, respectively.
[ID:nN1E7AH067]
 "The gains were fairly broadbased," said Camilla Sutton,
chief currency strategist at Scotia Capital.
 "That limits the ability for the Bank of Canada to turn too
dovish with still rising inflation in Canada, and it's positive
for the Canadian dollar."
 Higher interest rates tend to support a country's currency
by attracting capital flows.
 Analysts surveyed by Reuters expect the next Bank of Canada
interest rate move to be a hike, some time in mid to late-2012
or early 2013. [CA/POLL]
 But markets have been pricing in a rate cut for some time.
Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that traders scaled
back bets on a rate cut for this year or next after the
inflation data. BOCWATCH
 At 7:47 a.m. (1247 GMT), the Canadian dollar  CAD=D4
touched a high of C$1.0200 against the greenback, or 98.04 U.S.
cents, before retreating to C$1.0208. The currency ended
Thursday at C$1.0283 versus the greenback, or 97.25 U.S.
cents.
 Mazen Issa, Canada macro strategist at TD Securities, said
while the Canadian dollar got a boost on the inflation figures,
he expected most of the move would probably unwind by the end
of the day.
 "I don't think it will be maintained, particularly as we're
still so early in the day so I think they'll realize that the
Bank of Canada is still not going to be moving for a very long
time," he said.
 The focus outside Canada revolved around the debt crisis in
Europe.
 The euro rose on Friday as pressure on Spanish and Italian
bonds eased after the European Central Bank stepped in to
stabilize the market, but fears both countries' borrowing costs
are at unsustainable levels sent European stocks to new
five-week lows. [FRX/] [MKTS/GLOB]
 Canadian government bond prices were lower across curve and
mostly underperformed U.S. Treasuries.
 The yield on the two-year bond CA2YT=RR, which is
especially sensitive to Bank of Canada interest rate moves,
rose to 0.93 percent from 0.913 percent just before the data.
 The 10-year Canadian government bond CA10YT=RR fell 50
Canadian cents to yield 2.157 percent.
 (With additional reporting by Claire Sibonney; Editing by
Jeffrey Hodgson)