CANADA FX DEBT-C$ makes modest gains; focus on Bank of Canada

Fri Feb 27, 2015 10:01am EST
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* Canadian dollar at C$1.2496 or 80.03 U.S. cents
    * Bond prices mixed across the maturity curve

    By Solarina Ho
    TORONTO, Feb 27 (Reuters) - The Canadian dollar was firmer
against the greenback on Friday, tracking moderate gains in
crude prices, with the market primarily focused on the Bank of
Canada, which will announce an interest rate decision next week.
    Canadian inflation data this week supported the latest view
that the central bank will not cut rates again next week,
following its surprise 25-basis-point cut in January.
    Markets had widely priced in a 70 percent, or more, chance
of another rate cut, but that has fallen to about 25 percent
following a speech earlier this week by bank Governor Stephen
Poloz. In the speech, Poloz said last month's rate cut had
bought the central bank time to see how the economy adjusts to
the plunge in the price of oil, a major Canadian export.
    "Poloz's speech this week ... shifted expectation quite
dramatically," said Greg Moore, senior currency strategist at
RBC Capital Markets. He added, however, that it is unlikely that
the Canadian dollar has hit its weakest level.
    "If the Bank of Canada very clearly leaves the door open for
a cut still in coming meetings, that could actually be negative
for the currency next week."
    The Canadian dollar was at C$1.2496 to the
greenback, or 80.03 U.S. cents, at around 9:29 a.m. EST (1429
GMT), stronger than Thursday's close of C$1.2527, or 79.83 U.S.
    Crude oil futures rebounded on Friday following Thursday's
tumble, supported by strong investor inflows, a strengthening
demand outlook and supply outages. 
    Moore said day-to-day moves in the loonie are still tightly
linked to oil prices, whose moves recently have been broadly
sideways. This matches trading in USD/CAD, which has been
choppy, but still range-bound, he added.
    The Canadian dollar tumbled some 20 percent between June and
January, tracking the plunge in crude prices. Since hitting
C$1.28 at the end of January, its weakest level in nearly six
years, the loonie has traded between C$1.2353 and C$1.2697.
    Canadian government bond prices were mixed across the
maturity curve. The two-year rose half a Canadian
cent to yield 0.503 percent and the benchmark 10-year
 edged down 1 Canadian cent to yield 1.355 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)