CANADA FX DEBT-C$ slips as retail sales disappoint; monetary policy eyed

Fri Feb 20, 2015 4:32pm EST
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* Canadian dollar ends at C$1.2546, or 79.71 U.S. cents
    * Big drop in retail sales boosts odds of rate cut
    * Central banks in focus next week
    * Bond prices higher across maturity curve

    By Alastair Sharp
    TORONTO, Feb 20 (Reuters) - The Canadian dollar 
weakened against the U.S. dollar on Friday after disappointing
domestic retail sales data, with further slips likely if North
American central bankers stick to their divergent interest rate
trajectories next week.
    Bank of Canada Governor Stephen Poloz speaks on Tuesday,
while his Federal Reserve counterpart Janet Yellen will give
testimony to U.S. lawmakers on Tuesday and Wednesday.
    Another rate cut in Canada following January's shock move is
widely expected to be on its way, while the Fed is eyeing a hike
sometime this year.
    "Relatively hawkish comments from Yellen should be generally
U.S. dollar supportive," said Shaun Osborne, chief currency
strategist at TD Securities. "The Canadian currency will very
likely soften in the event of Poloz sounding somewhat dovish."
    The Canadian currency slipped to C$1.2546 against the U.S.
dollar, or 79.71 U.S. cents, by the close on Friday, well below
Thursday's North American session close at C$1.2498 to the
greenback, or 80.01 U.S. cents. 
    It lost 0.7 percent of its value over the week.
    Friday's retreat was aided by a bigger-than-expected 2
percent drop in retail sales in December, the largest decline
since April 2010. 
    "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.
    The currency largely ignored a deal reaching in Europe
between Greece and its international creditors. 
    "It's another delay and pray, pretend and extend, whatever
you want to call it, giving the Greeks a little bit of time to
sort themselves out and decide whether they are going to pay
everyone back," TD's Osborne said.
    He said the currency pair would likely trade within a
C$1.21-C$1.2650 range unless triggered by clear evidence the Fed
was about to raise rates or by renewed weakness in the price of
crude oil .
    A surprise interest rate cut last month and persistent
weakness in the price of crude has weighed on Canada's currency
as investors worry cheap oil could push domestic inflation into
negative territory. Canada is a major oil producer.
    Canadian government bond prices were higher across the
maturity curve, with the two-year rising 5 Canadian
cents to yield 0.405 percent. The benchmark 10-year 
rose 35 Canadian cents to yield 1.434 percent. 

 (Additioanl reporting by Andrea Hopkins; Editing by Meredith
Mazzilli and James Dalgleish)