CANADA FX DEBT-C$ eases after soft inflation data
* Canadian CPI weaker than expected in July * C$ hits session low of C$0.9902 vs US$, or $1.0099 * Bond prices rise across the curve By Solarina Ho TORONTO, Aug 17 (Reuters) - The Canadian dollar modestly pared back gains against the U.S. dollar on Friday after the country's inflation data were weaker than expected in July, raising odds that the Bank of Canada will shy away from hiking interest rates anytime soon. Consumers paid less for clothing and fuels such as gasoline and natural gas in the month compared with a year earlier, easing the annual inflation rate to 1.3 percent from 1.5 percent in June. Analysts had expected inflation to be unchanged from June. "This morning's CPI report was obviously a little bit weaker than the market was expecting. It does give reason for the Canadian dollar to fall today," said Greg Moore, FX Strategist at TD Securities, but added that the currency will likely continue to test the C$0.9800 level. "Today's moves really weren't that far outside of the bull range that's been persisting for the past month ... Regardless of the small moves today which you can credit to the CPI release, it doesn't really say much about where the currency might go in the next few days," said Moore. At 3:21 p.m. EDT (1921 GMT), Canada's dollar traded at C$0.9888 to the U.S. dollar, or $1.0113, down from Thursday's close at C$0.9867, or $1.0135. It fell as low as C$0.9902 to the U.S. dollar, or $1.0099 following the inflation data. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders slightly decreased bets on any chance of a rate hike after the inflation data. The currency was already on slightly weaker ground compared to Thursday's finish, as the greenback rebounded from a recent selloff. "The market we're in at the moment seem to be driven very much by U.S. dollar direction," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets in London. The Federal Reserve's FOMC minutes will be closely watched next week for further direction, while Bank of Canada Governor Mark Carney is expected to speak at an event. The Canadian dollar also backed off from a record high against the euro hit in the previous session, though it rallied against the Australian dollar on Friday, touching its strongest level since late June. Canadian bond prices picked up and yields fell following the disappointing inflation data. The interest-rate sensitive two-year bond rose 7.5 Canadian cents, yielding 1.201 percent, from around 1.232 percent before the data. The benchmark 10-year bond was up 16 Canadian cents, yielding 1.945 percent.
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