CANADA FX DEBT-C$ rattled by weak data, backs off early high
* Weak data blamed for turnaround in Canadian dollar
* C$ had earlier rallied to highest level since Nov. 10
* Bond prices up as investors seek safer assets
By Frank Pingue
TORONTO, Dec 18 (Reuters) - The Canadian dollar was down versus the U.S. dollar on Thursday as a batch of weak Canadian data supported the idea of further Bank of Canada rate cuts and dragged the currency from the near six-week high it reached earlier in the day.
Bond prices were up across the curve as investors rushed to pick up more secure government debt following the weak data and a selloff in Canadian equities.
At 9:45 a.m. (1445 GMT), the Canadian currency was at C$1.1999 to the U.S. dollar, or 83.34 U.S. cents, down from C$1.1967 to the U.S. dollar, or 83.56 U.S. cents, at Wednesday's close.
Earlier it had risen to C$1.1820 to the U.S. dollar, or 84.60 U.S. cents, its highest level since Nov. 10. The Canadian currency is still up 4 percent this week after rising in the previous three sessions.
Data that showed Canadian retail sales fell by more than expected in October, coupled with the biggest fall in Canada's leading indicator since 1991, all supported the idea of rate cuts by the Bank of Canada and reversed the currency's rally.
"We were firming up early in the session but in the wake of some pretty weak economic data out for Canada this morning we've sort of given some of that back and I suspect we will trade flat or slightly weaker on the day," said Michael Gregory, senior economist at BMO Capital Markets.
"All the data points to potential for further rate cuts by the Bank of Canada which, of course, will happen, and so that's taken a little bit of luster off the Canadian dollar."
Last week the Bank of Canada cut its key overnight rate by 75 basis points to 1.50 percent and said for the first time that Canada is entering a recession. Nearly all primary dealers are calling for another rate cut when the bank announces its next rate decision on Jan. 20.
A drop in the price of oil, a key Canadian export, was also weighing on the Canadian dollar. Oil prices fell to their lowest since July 2004 as a record output cut announced earlier this week by the Organization of the Petroleum Exporting Countries failed to halt the dip in oil.
BOND PRICES RISE
Canadian bond prices were all higher as the latest Canadian data added to a growing string of reports that support the idea of a weaker economy, while investors dumped riskier assets like equities in favor of debt.
Toronto's main stock index, which reopened on Thursday after a technical glitch halted activity for all of Wednesday, fell 1.46 percent to 8,596.67 at the open.
The next key Canadian economic data due out is Friday's consumer prices report for November.
The two-year bond was up 2 Canadian cents at C$102.84 to yield 1.268 percent. The 10-year rallied 33 Canadian cents to C$111.70 to yield 2.829 percent.
The yield spread between the two-year and 10-year bond was at 177 basis points, up from 175 basis points at the previous close.
The 30-year bond jumped C$1.05 to C$127.05 to yield 3.492 percent. In the United States, the 30-year Treasury yielded 2.600 percent. (Editing by Peter Galloway)
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