CANADA FX DEBT-C$ gets modest lift from strength in producer prices
* Canadian dollar at C$1.1044 or 90.55 U.S. cents * Bond prices lower across the maturity curve By Leah Schnurr TORONTO, April 1 (Reuters) - The Canadian dollar strengthened modestly against the greenback on Tuesday, helped by a bigger-than-expected increase in domestic producer prices. As investors looked ahead to more economic reports later in the week, data on Tuesday showed that Canadian producer prices rose by a more-than-expected 1 percent in February, helped by higher fuel prices and a weaker Canadian dollar. "We have some signs of very early downstream inflationary pressures, so that's kept the expectation for an interest rate hike in Canada very slightly positive for the next 12 months," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "That's been somewhat positive for the Canadian dollar." The Bank of Canada's monetary policy has been a major driver of the Canadian dollar in recent months. The central bank has flagged concern over a weak inflation environment, and the loonie was hit hard last month by more dovish-than-expected comments from the bank as it left the door open to a possible interest rate cut. The Canadian dollar was at C$1.1044 to the greenback, or 90.55 U.S. cents, firmer than Monday's close of C$1.1055, or 90.46 U.S. cents. It was a more positive start to the second quarter for the currency after the U.S. dollar appreciated 4.1 percent against the loonie in the first quarter, the biggest quarterly hit the it has taken since the third quarter of 2011. Data overnight showed major economies in Asia and Europe finished the first quarter on a weaker note. The euro zone's manufacturing PMI cooled slightly in March, while China's gauge of factory activity fell to an eight-month low. At home, investors will take in several key reports later in the week, including February's trade balance on Thursday and the unemployment rate on Friday. Hiring is forecast to have picked up last month after the economy shed jobs in February. "The key piece for Canada is really domestic data on Thursday and Friday," Sutton said. "Both those pieces will be important for judging how the Canadian backdrop is unfolding, particularly in light of a stronger-than-expected GDP print" on Monday. Since touching a 4-1/2 year low more than a week ago, the Canadian dollar has clawed higher, but analysts expect it will face significant resistance getting beyond the C$1.10 level. "Psychologically, it will be a very important shift if we move below C$1.10 and start with a C$1.09 handle," Sutton said. Canadian government bond prices were lower across the maturity curve, with the two-year off 0.7 Canadian cents to yield 1.071 percent and the benchmark 10-year down 23 Canadian cents to yield 2.485 percent. (Editing by Peter Galloway)
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