(Adds details from Bank of Canada, economist comment, market reaction)
* Canadian dollar at C$1.2416, or 80.54 U.S. cents
* Bond prices mostly lower across the maturity curve
By Solarina Ho
TORONTO, April 15 (Reuters) - The Canadian dollar on Wednesday powered to its strongest level against the U.S. dollar in a week after the Bank of Canada held its benchmark interest rate steady and talked down the probability of another rate cut.
Canada’s central bank estimated that the oil price crash had cut growth to zero during the first quarter, down from the annualized 1.5 percent it had forecast in January.
It expected the economy to pick up, however, as its surprise 25 basis point rate cut in January and improving U.S. demand help non-energy exports and labor markets improve.
“They are talking down the impact of the oil shock and talking down rate cut risks, and so one might expect CAD should follow the front end and reduce the probability of further cuts,” said Derek Holt, vice president of economics at Scotiabank.
The Canadian dollar, which was outperforming all of its counterparts, was trading at C$1.2416 to the U.S. dollar, or 80.54 U.S. cents at 10:57 a.m. EDT (1457 GMT). That was more than a cent stronger than just prior to the announcement and monetary policy report, and stronger than Tuesday’s finish of C$1.2490, or 80.06 U.S. cents.
Earlier in the session, the loonie had been as weak as C$1.2570, or 79.55 U.S. cents, weighed in part by a stronger greenback. Data that showed Canadian manufacturing sales had fallen by 1.7 percent to C$50.04 billion in February, in sharp contrast to the 0.4 percent increase economists had forecast, also pinched the currency.
Canadian government bond prices were mostly lower across the maturity curve, with the two-year off 7 Canadian cents to yield 0.551 percent and the benchmark 10-year slipping 2 Canadian cents to yield 1.32 percent.
The Canada-U.S. two-year bond spread was 4.7, while the 10-year spread was -56.3. (Additional reporting by Andrea Hopkins; Editing by Lisa Von Ahn)