CANADA FX DEBT-C$ weakens after big drop in retail sales
* Canadian dollar at C$1.2527, or 79.83 U.S. cents * Big drop in retail sales boosts odds of rate cut * Bond prices higher across maturity curve By Andrea Hopkins TORONTO, Feb 20 (Reuters) - The Canadian dollar weakened to session lows on Friday after data showed retail sales dropped by a more-than-expected 2.0 percent in December, the largest decline since April 2010, boosting expectations for another rate cut by the central bank. The drop in retail sales in what is typically a strong month dwarfed the expected 0.4 percent decline and wiped out November's 0.4 percent gain. The data from Statistics Canada showed cheaper gasoline and an apparent shift of purchases to Black Friday in November drove the decline. "The large disappointment in retail sales has increased the expectation that we could see another interest rate cut in Canada, and weighed heavily on the Canadian dollar," said Camilla Sutton, chief currency strategist at Scotiabank. At 9:14 a.m. (1414 GMT) the Canadian dollar was at C$1.2527 against the U.S. dollar, or 79.83 U.S. cents, well below Thursday's North American session close at C$1.2498 to the greenback, or 80.01 U.S. cents. It weakened to a session low $1.2539 shortly after the retail data was released. A surprise interest rate cut last month and persistent weakness in the price of crude oil has weighed on Canada's currency as investors worry cheap oil could push domestic inflation into negative territory. Canada is a major oil producer. Agathe Côté, a deputy governor at the central bank, said in a speech on Thursday there was no need to fear oil-related deflation and that the next interest rate decision due on March 4 had not been predetermined. But Sutton said the Canadian dollar was likely to remain under pressure heading into next week, anticipating a speech on Tuesday by Bank of Canada Governor Stephen Poloz and one on the same day by U.S. Federal Reserve Chair Janet Yellen. "I suspect what we'll continue to see (today) and continue to see into next week is an upward trend in the U.S. dollar generally," said Sutton. "I suspect the takeaway from (Tuesday's speeches) is ongoing downward pressure on the Canadian dollar." Sutton said the Canadian currency had likely already hit its strongest point of the day against the U.S. dollar at C$1.2422 and could test Thursday's weak point at C$1.2556. Canadian government bond prices were higher across the maturity curve, with the two-year rising 10 Canadian cents to yield 0.379 percent. The benchmark 10-year rose 76 Canadian cents to yield 1.393 percent. (Reporting by Andrea Hopkins; Editing by Meredith Mazzilli)
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