CANADA FX DEBT-C$ slides for second session, bonds rise
* C$ slides to 98.74 U.S. cents
* Canadian bond prices rise in light volume (Updates to close)
TORONTO, Dec 17 (Reuters) - The Canadian dollar ended lower against the U.S. currency for a second straight session on Friday as investors trained their focus on the troubles in the euro zone, which spurred a flight to safety to the U.S. dollar.
Canada's currency fell as low as C$1.0147 to the U.S. dollar, or 98.55 U.S. cents, its lowest point since Dec. 2, as the euro came under pressure after Moody's Investors Service slashed Ireland's credit rating by five notches.
The credit rating agency also warned that further downgrades could follow if Ireland is unable to stabilize its debt situation.
"It's essentially a U.S. dollar strength kind of day," said Sacha Tihanyi, currency strategist at Scotia Capital. "It seems like the positive news about the euro has worn off fairly quickly."
The Canadian dollar CAD=D4 finished at C$1.0128 to the U.S. dollar, or 98.74 U.S. cents, down sharply from its Thursday's finish of C$1.0059 to the U.S. dollar, or 99.41 U.S. cents. For the week, it is down 0.33 percent.
Looking ahead, next Tuesday's Canadian consumer price index report for November will likely be the highlight of the week, while October figures for retail sales and monthly GDP will also be considered.
If the forecasts are correct, the CPI report will prove that the surprising jump in October's annual inflation rate to 2.4 percent was just a blip and therefore not a concern for the Bank of Canada. [ID:nN17250600]
"I think a lot of people are looking to see if that increase was substantiated or not," said David Tulk, senior macro strategist at TD Securities, who is looking for inflation to return below the Bank of Canada's 2.0 percent target.
"That is broadly consistent with price trends that existed prior to the October increase. That in our mind provides some indication that the Bank of Canada doesn't have an inflation problem and that October was really an abnormality."
Inflation had been lower than expected for much of the year, so markets are looking for reassurance that the trend won't suddenly be reversed. Such a reassurance would leave the central bank in a comfortable position to hold its key interest rate unchanged at 1 percent for at least the first quarter of 2011.
BONDS RISE IN LIGHT FLOWS
Canadian bonds were higher across the curve, tracking prices of U.S. Treasuries, as investors took advantage of a recent back-up in U.S. yields to purchase debt, while some investors also took the view that the market has been pricing in too much economic improvement too fast. [US/]
Weakening stock markets also helped the less risky government bond market attract investors.
Flows were moderating as year-end approaches.
"Volumes are quite light and there just seems to be this sense that markets are going long right now. A lot of the positioning has largely taken place, so it's just the last couple of guys squaring up for the end of the year," Tulk said.
The two-year bond CA2YT=RR rose 8 Canadian cents higher to yield 1.647 percent, while the 10-year bond CA10YT=RR climbed 54 Canadian cents to yield 3.190 percent. Canadian government bonds put in a mixed performance against their U.S. counterparts. (Reporting by Ka Yan Ng; editing by Peter Galloway)
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