April 17, 2019 / 1:45 PM / 6 months ago

CANADA FX DEBT-Loonie hits 4-week high as rate-cut bets fall on higher inflation

    * Canadian dollar rises 0.4% against the greenback
    * Annual inflation rate edges up to 1.9%
    * Trade deficit falls in February to C$2.9 billion
    * Canadian bond prices rise across the yield curve

    TORONTO, April 17 (Reuters) - The Canadian dollar
strengthened to a four-week high against the greenback on
Wednesday as bets on a Bank of Canada interest rate cut this
year were checked by domestic data showing higher underlying
inflation and a narrower trade deficit.
    Canada's annual inflation rate edged up to 1.9% in March
from 1.5% in February, while two out of three of the Bank of
Canada's measures of core inflation edged up into the 2.0%
range, Statistics Canada data indicated.             
    Separate data from Statistics Canada showed Canada's trade
deficit declined for a second straight month in February,
falling slightly to C$2.9 billion, after reaching a record high
of C$4.8 billion in December 2018.             
    Chances of an interest rate cut this year fell to less than
20% from about 25% before the data, the overnight index swaps
market indicated.           
    At 9:27 a.m. (1327 GMT), the Canadian dollar          was
trading 0.4% higher at 1.3293 to the greenback, or 75.23 U.S.
cents. The currency touched its strongest intraday level since
March 20 at 1.3275.
    The gain for the loonie came as upbeat economic data from
China lifted investor sentiment.             
    The price of oil, one of Canada's major exports, was boosted
by China's data and a fall in U.S. crude stocks which defied
expectations and signaled firm demand.             
    U.S. crude        prices were up 0.4% at $64.31 a barrel.
    A right-of-center party swept to power in Canada's main
oil-producing province of Alberta on Tuesday and attacked Prime
Minister Justin Trudeau's efforts to fight climate change,
raising tension just months ahead of a federal election.
            
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 7.5 Canadian cents to
yield 1.673% and the 10-year             falling 34 Canadian
cents to yield 1.823.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 4 basis points to a spread of 74 basis
points in favor of the U.S. bond.

 (Reporting by Fergal Smith
Editing by Bill Trott)
  
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