CANADA FX DEBT-C$ firms as inflation rate picks up
* Canadian dollar at C$1.0870, or 92.00 U.S. cents * Bond prices higher across the maturity curve (Adds details, quotes, updates prices) By Leah Schnurr TORONTO, May 23 (Reuters) - The Canadian dollar firmed against the greenback on Friday after data showed the domestic annual inflation rate picked up as expected in April, though the currency was still confined to its recent trading range. So far in May, the Canadian dollar has largely moved sideways as analysts weigh generally improving economic data against the Bank of Canada's neutral policy stance. The central bank shifted away from its hawkish bias last October, an action that has pressured the loonie. The Bank of Canada has expressed concern about low inflation, but Friday's data showed the annual rate rose in April to the central bank's 2 percent target for the first time in two years. "I think what we're seeing here is a little bit of optimism from the loonie bulls that we might see Governor Poloz change his tone a little bit at the next meeting," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary. "I think we're getting to a point where Poloz can't really be as dovish as he has in the past, so we're starting to see that influence the loonie's trading pattern." The Bank of Canada will issue its next policy statement in early June. The Canadian dollar ended the North American session at C$1.0870 to the U.S. dollar, or 92.00 U.S. cents, stronger than Thursday's close of C$1.0893, or 91.80 U.S. cents. While the data was positive for the Canadian dollar, a substantially stronger currency would likely be met with pushback from the Bank of Canada, said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. The central bank is hoping to see the export sector pick up. "So all in all, we're likely to see the Canadian dollar trade in a fairly tight range," said Sutton. "I think we're either side of C$1.10. We're sitting a little bit stronger than that right now, but I think we'll be either side of C$1.10 for the next couple of months." Heading into the weekend, investors were also monitoring tensions in Ukraine before a presidential election on Sunday. Armed pro-Russian separatists and a Ukrainian militia group clashed in the east of Ukraine on Friday. Canadian government bond prices were higher across the maturity curve, with the two-year up 0.7 of a Canadian cent to yield 1.054 percent and the benchmark 10-year up 19 Canadian cents to yield 2.307 percent. (Additional reporting by Andrea Hopkins; Editing by James Dalgleish)
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