October 19, 2012 / 12:47 PM / 5 years ago

Canada dollar weakest since early September on soft inflation

TORONTO (Reuters) - The Canadian dollar hit its weakest level against the U.S. currency since early September on Friday as soft Canadian inflation data weighed on rate rise expectations and disappointing U.S. corporate earnings cast a pall over the market.

Prices in Canada rose at a similarly low rate in September as they did in August, leaving little justification for the Bank of Canada to maintain a hawkish bias when it announces its latest interest rate decision next Tuesday.

"The (inflation) report should weigh towards a softer dollar, given the implications for the Bank of Canada," said Sal Guatieri, senior economist at BMO Capital Markets.

At 9:30 a.m. (1330 GMT) the Canadian dollar was trading at C$0.9894 to the greenback, or $1.0107, compared with C$0.9849, or $1.0153, at Thursday's North American close.

At one point it reached C$0.9905, its weakest level since September 6, after sliding the previous day on a host of negative factors.

The currency has fallen 1 percent so far this week after Bank of Canada Governor Mark Carney failed to mention an intention to raise interest rates in speech he gave on Monday.

Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that after the inflation data traders slightly increased their small bets on a rate cut in the coming year.

A Reuters poll released on Thursday suggested the central bank will postpone interest rate hikes until the fourth quarter of next year and will likely water down, rather than eliminate, its hawkish language.

Declines in the price of gold and copper also weighed on the currency, while a handful of disappointing U.S. earnings reports added to the pessimistic tone.

Major tech corporates Microsoft (MSFT.O) and Google (GOOG.O) issued lackluster earnings on Thursday, while General Electric's (GE.N) reported revenue early on Friday that fell short of expectations.

Editing by Peter Galloway

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