CANADA FX DEBT-C$ firms but Bank of Canada still in focus

Reuters

* Canadian dollar at C$1.0946 or 91.36 U.S. cents * Bond prices up across the maturity curve By Leah Schnurr TORONTO, Jan 20 (Reuters) - The Canadian dollar firmed against the greenback on Monday in what was expected to be a quiet trading day with U.S. markets closed, while focus was on the Bank of Canada's policy-setting meeting later in the week.

The loonie got some support from data released overnight that showed China's economy grew at an annualized rate of 7.7 percent in the fourth quarter, slightly above expectations. Still, some economists say a cooldown in the world's second-largest economy will be inevitable this year.

Overnight market action showed some "cautious optimism" over the data, said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

"It's still that narrative that we're seeing a slight slowdown in Chinese growth, which most analysts have forecast for the Chinese economy in 2013 and 2014 as the government goes through its reform process," said Smith.

The Canadian dollar was at C$1.0946 to the greenback, or 91.36 U.S. cents, stronger than Friday's close of C$1.0976, or 91.11 U.S. cents.

Smith said he expects the Canadian currency to trade in a narrow range of C$1.09 to C$1.10 up until Wednesday morning, before the Bank of Canada releases its policy statement and interest rate decision.

The Bank of Canada shifted gears in October last year, dropping any talk of rate hikes after 18 months of signaling that tightening was on the horizon. The change has weighed heavily on the Canadian dollar.

After some disappointing economic data earlier in January, including a surprise increase in the unemployment rate, some analysts expect the central bank could sound more dovish in its statement on Wednesday, to the further detriment of the loonie.

Canadian government bond prices were higher across the maturity curve, with the two-year up 1-1/2 Canadian cents to yield 1.015 percent and the benchmark 10-year up 19 Canadian cents to yield 2.479 percent.

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