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