CANADA FX DEBT-C$ eases after soft inflation data

Fri Aug 17, 2012 3:27pm EDT
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* 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
    "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
    The currency was already on slightly weaker ground compared
to Thursday's finish, as the greenback rebounded from a recent
    "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.