February 27, 2019 / 2:33 PM / 9 months ago

CANADA FX DEBT-C$ strengthens as oil rally offsets inflation slowdown

    * Canadian dollar rises 0.3 percent against greenback
    * Price of U.S. oil climbs 2 percent
    * Canada's inflation rate falls to 1.4 percent in January
    * Bond prices decline across the yield curve

    By Fergal Smith
    TORONTO, Feb 27 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Wednesday, as higher oil prices
offset tame domestic inflation data that supported a patient
approach from the Bank of Canada on raising interest rates
further.
    Lower gasoline prices pulled Canada's annual inflation rate
in January down to 1.4 percent from 2.0 percent in December,
reinforcing market expectations that imminent interest rate
hikes are off the table.             
    "It keeps core inflation running below their (Bank of
Canada) target mid-point, so it allows them to remain patient on
hiking interest rates," said Ryan Brecht, a senior economist at
Action Economics.
    The Bank of Canada, which targets an inflation rate of two
percent, is widely expected to leave its benchmark interest rate
on hold at 1.75 percent when it decides on policy next week. 
    The central bank has hiked 125 basis points since July 2017.
    The price of oil, one of Canada's major exports, was buoyed
by an unexpected decline in U.S. crude inventories and after
Saudi Arabia appeared undaunted by pressure from U.S. President
Donald Trump on OPEC to prevent steeper price rises.
            
    U.S. crude oil futures        rose 2 percent to $56.62 a
barrel.
    At 9:11 a.m. (1411 GMT), the Canadian dollar          was
trading 0.3 percent higher at 1.3130 to the greenback, or 76.16
U.S. cents.
    The currency, which touched on Monday its strongest in
nearly three weeks at 1.3113, traded in a range of 1.3119 to
1.3176.
    The loonie rose despite increased tensions between
nuclear-armed neighbors India and Pakistan, which weighed on
U.S. stocks.             
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year           
fell 2.5 Canadian cents to yield 1.769 percent and the 10-year
            declined 18 Canadian cents to yield 1.887 percent.
    Canada's fourth-quarter gross domestic product data is due
on Friday.   

 (Reporting by Fergal Smith; Editing by Bernadette Baum)
  
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