CANADA FX DEBT-C$ weakens as domestic retail sales data disappoints
* Canadian dollar at C$1.2856, or 77.78 U.S. cents * Bond prices lower across steeper maturity curve By Fergal Smith TORONTO, Aug 19 (Reuters) - The Canadian dollar fell against its U.S. counterpart on Friday after weaker-than-expected domestic retail sales data, although some losses were pared as oil prices rose. Canadian retail sales unexpectedly fell 0.1 percent in June on weaker sales of food and alcohol, while fewer consumers shopped at general merchandise stores, data from Statistics Canada showed. "It just suggests that maybe the Canadian consumer is growing a bit tired of carrying the burden of growth. And we don't really have a lot of other things that are supporting growth right now if the Canadian consumer steps back," said David Watt, chief economist at HSBC Canada. Still, the Bank of Canada is unlikely to react until it sees more data for the third quarter, Watt said. The implied probability of an interest rate cut this year from the central bank edged up to 22 percent from 20 percent before the data, overnight index swaps data showed. In a separate report, Canada's annual inflation rate cooled as expected in July to 1.3 percent from June's 1.5 percent rate, pulled down by cheaper gasoline prices. Annual core inflation was more robust at 2.1 percent. At 9:32 a.m. EDT (1332 GMT), the Canadian dollar was trading at C$1.2856 to the greenback, or 77.78 U.S. cents, weaker than Thursday's close of C$1.2771, or 78.30 U.S. cents. The currency's strongest level of the session was C$1.2774, while its weakest was C$1.2892. On Thursday, the loonie touched its highest in nearly eight-weeks at C$1.2765. U.S. crude prices were up 0.21 percent at $48.32 a barrel, supported by a lift in sentiment over talks next month on a possible output freeze. The U.S. dollar rose against a basket of currencies, clawing back some of this week's losses. Canadian government bond prices were lower across the maturity curve in sympathy with U.S. Treasuries. The two-year bond dipped 1 Canadian cent to yield 0.578 percent and the benchmark 10-year declined 30 Canadian cents to yield 1.073 percent. The curve steepened as the spread between the 2-year and 10-year yields widened by 2.7 basis points to 49.5 basis points, indicating underperformance for longer-dated maturities. On Thursday, the spread hit its narrowest since June 2008 at 46.8 basis points. (Editing by Bernadette Baum)
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