CANADA FX DEBT-C$ jumps to 5-1/2 month high on firm inflation, retail data

Fri Jun 20, 2014 4:52pm EDT
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* C$ ends at C$1.0752 to greenback, or 93.01 U.S. cents

* Inflation data forces market rethink on rates

* Bond yields spike (Adds economist comments, primary dealers poll, updates prices)

By Alastair Sharp

TORONTO, June 20 (Reuters) - The Canadian dollar firmed to its strongest level since the first week of 2014 on Friday after surprisingly high Canadian inflation data and robust retail sales figures challenged the central bank's accommodative policy stance.

In a Reuters poll of primary dealers taken after the release of the data, the dealers forecast that the Bank of Canada's interest-rate trajectory likely wouldn't change, and that it still would not raise rates until the third quarter of next year, but that it would likely have to stop fretting about low inflation.

The Bank of Canada warned investors just last week that low inflation is a lingering concern, signaling to markets its reluctance to raise rates. But the twin data points jolted the currency more than half a cent stronger as it forced traders to rethink the rate outlook.

"Expectations of rate cuts have been pretty much eliminated here in Canada," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "We will start seeing some speculation about whether rate hikes will start to come sooner rather than later."

The currency ended the session at C$1.0752 to the U.S. dollar, or 93.01 U.S. cents, its firmest level since Jan. 7. It closed on Thursday at C$1.0823, or 92.40 U.S cents.   Continued...