CANADA FX DEBT-C$ nudges higher, but all eyes on Bank of Canada

Fri Feb 27, 2015 4:46pm EST
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(Updates with fresh comment, details, closing figures)
    * 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 eked out a
modest gain against its U.S. counterpart on Friday, tracking
higher crude prices, but market attention was primarily focused
on the Bank of Canada, which will announce an interest rate
decision next Wednesday.
    The price of crude, a major Canadian export, rose sharply as
an improving demand outlook and supply outages bolstered
sentiment, with Brent and U.S. futures posting their first
monthly gains since June. U.S. oil prices were still below $50 a
barrel, but overall, managed a 3.1 percent gain in February.
    "A lot of the direction has been oil related," said Don
Mikolich, executive director, foreign exchange sales at CIBC
World Markets. "Canada has performed fairly well relative to
other majors."
    Mikolich said unless oil prices see another big drop, the
currency would likely hold between C$1.2350 and C$1.26 in the
near term.
    The Canadian dollar ended the North American
session at C$1.2503 to the greenback, or 79.98 U.S. cents,
stronger than Thursday's close of C$1.2527, or 79.83 U.S. cents.
It strengthened 0.24 percent for the week.
    The loonie tumbled some 20 percent between June and January,
tracking the plunge in crude. 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 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 since fallen below 30 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.
    "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."
    Canadian government bond prices were higher across the
maturity curve. The two-year rose 6 Canadian cents to
yield 0.474 percent and the benchmark 10-year 
climbed 52 Canadian cent to yield 1.302 percent.

 (Reporting by Solarina Ho; Editing by Peter Galloway)