* C$ advances to 96.81 U.S. cents, hits 6-week high
* Bonds hold lower
* Bank of Canada holds rates, sees no early hike (Adds details)
TORONTO, March 2 (Reuters) - Canada’s currency hit a six-week high against the U.S. dollar on Tuesday, while bonds held lower, after the Bank of Canada left interest rates unchanged, as expected.
The Canadian dollar rose as high as C$1.0309 to the U.S. dollar, or 97 U.S. cents, soon after the central bank rate decision as market players detected a tone shift in the bank’s statement.
The central bank acknowledged stronger-than-expected economic growth and inflation, and it also removed a reference to downside risks to its inflation outlook that had been present in previous statements, all of which hinted at a slightly more hawkish bent. [ID:nN02149877]
“It’s a subtle but important change,” said Matthew Strauss, senior currency strategist at RBC Capital Markets. “By now saying (risks to inflation outlook is) roughly balanced, the underlying dovish tone has disappeared and made way for a neutral statement.”
“More importantly, the overall backdrop remains quite positive with the risk appetite continuing globally. Equities, commodities are looking pretty decent today,” Strauss said.
Although the central bank continued to uphold its conditional commitment to keep rates at their current low level until the end of June, it appeared also to prime markets for a stronger signal about the timing of eventual rate hikes.
“Right now I think it’s setting the stage to an upgrade to its GDP forecast when we get its next round of official projections in April,” said Jonathan Basile, an economist at Credit Suisse in New York.
At 12:20 p.m. (1720 GMT), the Canadian dollar was at a C$1.0329 to the U.S. dollar, or 96.81 U.S. cents, up from C$1.0416 to the U.S. dollar, or 96.06 U.S. cents, at Monday’s close.
The two-year Canadian government bond CA2YT=RR slipped 5 Canadian cents to C$100.25 to yield 1.375 percent, while the 10-year bond CA10YT=RR fell 3 Canadian cents to C$102.70 to yield 3.407 percent. (Reporting by Ka Yan Ng; editing by Peter Galloway)
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