CANADA FX DEBT-C$ weakens after inflation slip, China rate cut

Fri Oct 23, 2015 4:57pm EDT
 
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* Canadian dollar at C$1.3175, or 75.90 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds details, quote, updates prices)
    By Alastair Sharp and Leah Schnurr
    TORONTO/OTTAWA, Oct 23 (Reuters) - The Canadian dollar
weakened to a fresh three-week low against its U.S. counterpart
on Friday after domestic inflation data slipped more than
expected and China cut interest rates to spur growth in its
slowing economy.
    A drop in the price of oil also weighed on the
commodity-sensitive currency.
    Canada's annual inflation rate dipped to 1.0 percent in
September on lower prices for gasoline, marking the 10th
straight month it has been below the Bank of Canada's 2.0
percent target, data showed. 
    The data suggested the central bank has plenty of room to
keep interest rates low. After two rate cuts earlier this year,
analysts expect it won't raise rates until 2017. 
    "If you couple the CPI numbers that signal inflation is
stagnant or non-existent ... with the slump that we're seeing in
oil prices, it's only natural that we would see the Canadian
dollar soften as it has," said Lennon Sweeting, currency
payments analyst at USForex. 
    The Canadian dollar ended the North American
trading session at C$1.3175 to the greenback, or 75.90 U.S.
cents, weaker than Thursday's close of C$1.3107, or 76.30 U.S.
cents.
    At one point it touched C$1.3198, its weakest since Oct. 2.
The loonie lost more than 2 percent on the week.
    U.S. crude prices settled down 78 cents at $44.60 a
barrel. 
    Global markets were also taking in a move by China's central
bank to cut rates for the sixth time since November and again
lower reserve requirements for banks. 
    "I do think that is a signal for economic growth globally
and as a commodity-based currency, it does put our economy in
jeopardy, in some sense," said Sweeting.
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2.5
Canadian cents to yield 0.535 percent and the benchmark 10-year
 falling 50 Canadian cents to yield 1.506 percent.
    The Canada-U.S. two-year bond spread was -11.0 basis points,
while the 10-year spread was -58.2 basis points.

 (Additional reporting by Susan Taylor; Editing by James
Dalgleish)