CANADA FX DEBT-C$ edges higher after inflation slows

Fri Feb 20, 2009 7:53am EST
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* Both overall, core rate fall more than expected

* C$ up from pre-data level, flat from Thursday close

TORONTO Feb 20 (Reuters) - The Canadian dollar edged higher versus the U.S. dollar on Friday following data that showed inflation slowed and cemented the view that the Bank of Canada would likely continue to cut interest rates next month.

A sharp drop in vehicle prices pushed Canadian consumer prices down in January by a sharper-than-expected 0.3 percent for an annual inflation rate of 1.1 percent compared with 1.2 percent in December, Statistics Canada said. [ID:nN20500487]

At 7:30 a.m. (1230 GMT), the Canadian dollar was at C$1.2594 to the U.S. dollar, or 79.40 U.S. cents, up from around the C$1.2620 area, or 79.24 to the U.S. dollar, just before the date.

But it was flat from Thursday's Bank of Canada closing quote at C$1.2593 to the U.S. dollar, or 79.41 U.S. cents.

"As far as monetary policy is concerned it opens the door wide for another 50 basis point cut in March," said Matthew Strauss, senior currency strategist at RBC Capital Markets.

"For the Canadian dollar, we saw a positive reaction, but...I don't think this is enough to provide a strong trend for the Canadian dollar."

The Bank of Canada next sets interest rates on March 3. It has lowered its overnight rate by 350 basis points since December 2007, bringing it to currently stand at 1 percent.

Lately, the Canadian dollar's performance has been tied closely to moves in equities. (Reporting by Ka Yan Ng and John McCrank; Editing by Jeffrey Hodgson)