CANADA FX-C$ drops to session low, bonds rise after CPI

Tue Dec 21, 2010 8:23am EST
 
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 * C$ hits session low, pares losses to 98.09 U.S. cents
 * Bond prices rise across the curve
 * Canada Nov inflation eases beyond expectations
 * Bank of Canada seen holding rates steady
  (Adds details)
 TORONTO, Dec 21 (Reuters) - Canada's dollar fell to a
session low against the U.S. currency on Tuesday, while bond
prices jumped, after Canada's annual inflation rate slowed more
than expected in November, which could keep the Bank of Canada
from hiking interest rates for longer than markets anticipate.
 The currency CAD=D4 eased as low as C$1.0207 to the U.S.
dollar, or 97.97 U.S. cents, almost matching the near-three
week low hit in the previous session.
 It bounced between this session low and its pre-data level
of C$1.0190 to the U.S. dollar, or 98.14 U.S. cents, as the
inflation data weighed on expectations of rate increases early
next year.
 "The currency was already on its back foot. Normally one
would see this as slightly negative for the currency but it
hasn't made big waves," said Doug Porter, deputy chief
economist at BMO Capital Markets.
 "No one report is going to alter the broader outlook on the
Bank of Canada, but at the very least it will dampen talk of
the bank going early in 2011."
 The Canadian currency was also lower than Monday's close at
C$1.0164 to the U.S. dollar, or 98.39 U.S. cents, sliding as
Moody's put Portugal on review for a possible downgrade and as
commodity prices softened.
 The consumer price index edged up 0.1 percent in the month
for an annual rate of 2 percent, Statistics Canada said, down
from 2.4 percent annual inflation in the previous month and
below the market forecast of 2.2 percent. [ID:nSCLLNE682]
 The results supported the view that the central bank, which
targets 2 percent inflation, will hold rates steady into early
2011. Earlier this month, the Bank of Canada maintained its
target for the overnight rate at 1 percent.
 Markets were pricing in a 89.4 percent probability of rates
staying on hold in January, up slightly from about 89 percent
prior to the report, according to overnight index swaps tracked
by Reuters. BOCWATCH
 At 8 a.m. (1300 GMT), the Canadian dollar was at C$1.0195
to the U.S. dollar, or 98.09 U.S. cents. The two-year bond
CA2YT=RR rose 6 Canadian cents to yield 1.605 percent, while
the 10-year bond CA10YT=RR climbed 21 Canadian cents to yield
3.145 percent.
 Market players now await Canadian October retail sales
figures, due at 8:30 a.m., which is expected show a rise of
0.5 percent in overall sales in the month compared to a 0.6
percent gain in September. ECONCA
  (Reporting by Ka Yan Ng; Editing by Chizu Nomiyama)