CANADA FX DEBT-C$ firms as Poloz remarks seen reducing chance of rate cut
* Canadian dollar at C$1.2423 or 80.50 U.S. cents * Bond prices mostly lower across the maturity curve By Solarina Ho TORONTO, Feb 25 (Reuters) - The Canadian dollar strengthened against the greenback on Wednesday after markets dramatically scaled back their expectations for another interest rate cut by the Bank of Canada, while U.S. Federal Reserve Chair Janet Yellen suggested the Fed is in no rush to raise rates. The Canadian dollar reversed four straight sessions of losses on Tuesday after Bank of Canada Governor Stephen Poloz said last month's surprise 25-basis-point rate cut had bought the central bank time to see how the economy responds to the plunge in the price of oil, a major Canadian export. Markets have struggled to interpret the Bank of Canada, and before Poloz's comments they had priced in a 70 percent or more chance of another rate cut next week. On Wednesday, that dropped to less than 30 percent. "This currency move has detached from what had been a great driver before, which everyone knows is energy, and really it's all about rates," said Brad Schruder, director, foreign exchange sales at BMO Capital Markets. "You have changing rate expectations in Canada along with changing rate expectations in the States with the Fed. Those two factors combined make Canada more appealing." The Canadian dollar finished at C$1.2423 to the U.S. dollar, or 80.50 U.S. cents. That was higher than Tuesday's North American session close of C$1.2496 to the U.S. dollar, or 80.03 U.S. cents. It had traded as strong as C$1.2395 overnight, its most robust showing in a week. "Obviously the last 24 hours or so have been a bit of a perfect storm in terms of the comments we saw from the two central bank governors in North America yesterday," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London. The U.S. dollar dropped in the wake of Yellen's comments that the Fed was preparing to consider rate hikes "on a meeting-by-meeting basis" but would provide markets with clearer signals before it moved. Schruder said the loonie has the potential to appreciate a couple more cents, adding that if Thursday's U.S. inflation data for January due comes in weaker than expected and Canadian inflation data meets expectations, the Canadian dollar could pick up another half cent. Canadian government bond prices were mostly lower across the maturity curve. The two-year was flat, yielding 0.475 percent, and the benchmark 10-year slipped 3 Canadian cents to yield 1.329 percent. (Additional reporting by Andrea Hopkins; Editing by Peter Galloway)
© Thomson Reuters 2016 All rights reserved.