CANADA FX DEBT-C$ edges lower as core inflation cools

Fri Nov 18, 2016 9:35am EST
 
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* Canadian dollar at $1.3512, or 74.01 U.S. cents
    * Bond prices higher across the yield curve
    * Canada-U.S. 10-year spread widest since January

    By Fergal Smith
    TORONTO, Nov 18 (Reuters) - The Canadian dollar edged lower
against its U.S. counterpart on Friday as higher oil prices were
offset by broader gains for the greenback and data showing
cooler domestic core inflation.
    Canada's annual inflation rate picked up to an annual rate
of 1.5 percent in October, matching analysts' expectations, as
gasoline prices rose, data from Statistics Canada showed.
 
    The core rate, which strips out some volatile items, cooled
slightly to 1.7 percent from 1.8 percent, hitting the lowest
level since July 2014.
    "Decelerating core inflation does reflect an economy that
has still a fair bit of excess capacity in it," said Andrew
Kelvin, senior rates strategist at TD Securities.
    The U.S. dollar powered to its highest levels since
2003 against a basket of currencies, supported by a perception
that the economic policies of U.S. President-elect Donald Trump
will push up consumer prices and by expectations that the
Federal Reserve will raise interest rates next month.
 
    U.S. crude prices were up 0.42 percent to $45.61 a
barrel, buoyed by renewed hopes that OPEC might agree to
production cuts.
    Oil is one of Canada's major exports.
    At 9:22 a.m. EDT (1422 GMT), the Canadian dollar 
was trading at C$1.3512 to the greenback, or 74.01 U.S. cents,
slightly weaker than Thursday's close of C$1.3507, or 74.04 U.S.
cents.
    The currency's strongest level of the session was C$1.3494,
while its weakest was C$1.3564.
    On Monday, the loonie touched its weakest in eight months at
C$1.3589.
    The leaders of Mexico and Canada will hold talks this
weekend on the potential impact a Trump presidency could have on
the NAFTA trade pact, a source close to the matter said on
Thursday. 
    Canadian government bond prices were higher across the yield
curve, with the two-year up 3 Canadian cents to yield
0.661 percent and the benchmark 10-year rising 31
Canadian cents to yield 1.528 percent.
    The 10-year yield fell 4.1 basis points further below its
U.S. counterpart to leave the spread at -75.6 basis points, its
largest gap since January, as U.S. Treasuries underperformed.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)