January 26, 2018 / 9:41 PM / 5 months ago

CANADA FX DEBT-C$ strengthens vs weaker greenback as core inflation rises

 (Adds strategist quotes and updates prices)
    * Canadian dollar at C$1.2327, or 81.12 U.S. cents
    * Canada's inflation rate falls to 1.9 percent in December
    * Bond prices mixed across yield curve
    * Canada-U.S. 2-year spread widens by 4.1 basis points

    By Fergal Smith
    TORONTO, Jan 26 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Friday as the greenback broadly
fell and domestic data showed a pick up in underlying inflation.
    Canada's annual inflation rate dipped as expected in
December to 1.9 percent but two out of three of the Bank of
Canada's measures of core inflation rose.             
    Additional firming of core inflation "validates" the Bank of
Canada's interest rate hike earlier this month, said Scott
Smith, managing partner at Viewpoint Investment Partners. "The
data continues to come out with a positive shine."
    The central bank has raised rates three times since July.
Its benchmark interest rate sits at 1.25 percent, its highest
since January 2009.
    Money markets expect another hike by May.           
    The U.S. dollar        fell against a basket of major
currencies, bruised by comments by senior U.S. officials this
week backing a weak dollar and after data showed U.S. economic
growth unexpectedly slowed in the fourth quarter.             
    The weaker greenback helped underpin the price of oil, one
of Canada's major exports. U.S. crude        prices settled up
nearly 1.0 percent at $66.14 a barrel.             
    At 4 p.m. EST (2100 GMT), the Canadian dollar          was
trading 0.4 percent higher at C$1.2327 to the greenback, or
81.12 U.S. cents.
    The currency traded in a range of C$1.2294 to C$1.2391. On
Thursday, the loonie touched its strongest in four months at
C$1.2283.
    For the week, the loonie rose 1.4 percent.
    Speculators raised bullish bets on the Canadian dollar for
the third straight week, data from the U.S. Commodity Futures
Trading Commission and Reuters calculations showed. As of Jan.
23, net long positions rose to 22,557 contracts from 17,556 a
week earlier.
    Canadian government bond prices were mixed across the yield
curve, with the 10-year             rising 1 Canadian cent to
yield 2.264 percent.
    The gap between Canada's 2-year yield and its U.S.
counterpart widened by 4.1 basis points to a spread of -30.3
basis points, its widest since Dec. 12.

 (Reporting by Fergal Smith; Editing by Chris Reese)
  
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