CANADA FX DEBT-C$ hit session high after May inflation data

Tue Jun 22, 2010 8:13am EDT
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 * C$ hits session high of C$1.0207, or 97.97 U.S. cents
 * Canada inflation eases in May from April, tops forecasts
 By Jennifer Kwan
 TORONTO, June 22 (Reuters) - The Canadian dollar firmed
against the U.S. currency on Tuesday, supported by domestic
inflation data that came in stronger than market expectations
but eased from a month earlier.
 The Canadian dollar CAD=D4 firmed to a session high of
C$1.0207, or 97.97 U.S. cents after the report.
 Data showed Canada's annual inflation rate slowed in May
from April, suggesting less pressure on the Bank of Canada as
it ponders the timing of its second interest rate hike
following the recession. [ID:nN22110502]
 The consumer price index gained 0.3 percent in the month
for an annual rate of 1.4 percent, Statistics Canada said on
Tuesday. The rate eased from 1.8 percent in April and was a
notch above the consensus forecast of 1.3 percent.
 Core CPI, closely watched by the central bank, came in
higher but was still below the bank's 2 percent target at 1.8
percent. Analysts in a Reuters poll had forecast a 1.7 percent
annual rate versus 1.9 percent in April.
 "The CPI came in above expectations, with most of the
underlying components seeing year-over-year gains," said
Camilla Sutton, currency strategist at Scotia Capital.
 "It's stronger than expected, which I think solidifies
expectations the Bank of Canada will hike rates again in July.
That is positive for the Canadian dollar."
 At 8:10 a.m. (1210 GMT), the Canadian dollar was at
C$1.0223 to the U.S. dollar, or 97.82 U.S. cents, up from
Monday's close at C$1.0244 to the U.S. dollar, or 97.62 U.S.
 The bank raised its key rate on June 1 by a quarter-point
to 0.5 percent. Markets widely expect another hike on July 20.
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, edged
lower following the data's release.
 While that shows the market saw tightening as slightly less
likely than before the data, the market was still pricing in a
nearly 80 percent probability of a July hike. BOCWATCH
 Canadian government bond prices were mixed, with yields
little changed from before the data.
 The two-year government bond CA2YT=RR sagged 2 Canadian
cents to yield 1.747 percent, while the 10-year bond
CA10YT=RR was up 5 Canadian cents to yield 3.321 percent.
 (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)