CANADA FX DEBT-C$ little changed after tame inflation data

Fri Oct 22, 2010 8:21am EDT
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   * C$ firms to 97.56 U.S. cents
 * Bonds flat to higher
 * Canadian inflation muted
 (Adds details, commentary)
 By Claire Sibonney
 TORONTO, Oct 22 (Reuters) - The Canadian dollar firmed
slightly against its U.S. counterpart on Friday after domestic
inflation rose as expected, prompting analysts to predict the
Bank of Canada would keep interest rates steady.
 Canada's annual inflation rate rose to 1.9 percent in
September from 1.7 percent in August, in line with consensus,
in part due to higher prices for energy, autos and electricity.
 The annual core inflation rate, which strips out volatile
items and the effects of tax changes, dropped to 1.5 percent
from 1.6 percent. Analysts had forecast it would stay
unchanged, signaling some softness in the report overall.
 Sheryl King, chief Canadian economist at Bank of America
Merrill Lynch, said the latest data was unlikely to strengthen
the resolve of those who think the Bank of Canada will begin to
raise interest rates soon.
 "Broadly speaking this (data) shouldn't have very much of
an impact on the Canadian dollar," she said.
 The central bank paused on rates earlier this week, and
said that it would have to consider any further rate hikes
carefully, given the patchy global recovery, a weak U.S.
outlook and expected curbs on Canadian growth. [ID:nN20223890]
 "I don't think it's much in the way of a market mover
simply because of what we already know from the Bank of
Canada," said Mark Chandler, head of fixed income and currency
strategy at RBC Capital Markets.
 He said there is still a chance the bank could hike rates
again as soon as March 2011.
 "But we've got so much data between now and then, that they
have the luxury really of sitting back and waiting to see how
the data pans out," said Chandler. "To be honest in the current
environment, it's probably demand figures that will be a little
more important than inflation figures."
 At 8:15 a.m. (1215 GMT), the Canadian dollar CAD=D4 stood
at C$1.0259 to the U.S. dollar, or 97.48, up a touch from it's
Thursday finish at C$1.0263 to the U.S. dollar, or 97.44 U.S.
 Investors will look to domestic retail sales data at 8:30
a.m. for further direction. More broadly, focus will shift to
the Group of 20 meeting in South Korea. Many expect finance and
central bank chiefs to try to reach agreement on a common path
to manage currency, trade and macroeconomic imbalances.
 Canadian bond prices firmed slightly, tracking U.S.
Treasuries higher, but the market remained largely subdued
ahead of November's crucial Federal Open Market Committee
meeting, where the Fed could announce further monetary
stimulus. [US/]
 Chandler noted there was little new direction for the
domestic bond market to take from the inflation data and
signals for the Bank of Canada.
 "There's not much priced in so there's very little to take
out when you get soft data. In this environment you almost have
to look at the Canadian dollar as a better indicator and
actually very little movement in the numbers themselves," he
 The two-year bond CA2YT=RR was unchanged to yield 1.394
percent, while the 30-year bond CA10YT=RR gained 5 Canadian
cents to yield 2.754 percent.
 (Reporting by Claire Sibonney; editing by Jeffrey Hodgson)