CANADA FX DEBT-C$ weakens as lower oil prices trigger position squaring
(Adds analyst quote, adds details on CFTC data, updates prices) * Canadian dollar ended at C$1.3037, or 76.70 U.S. cents * Currency touched strongest level since Oct. 19 at C$1.2924 * Bond prices mixed across maturity curve By Fergal Smith TORONTO, March 18 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday as lower oil prices weighed, but firm domestic retail sales data had helped push the currency to a nearly five-month high earlier in the session. The currency extended its rebound from a 12-year low in January after strength in retail sales bolstered expectations first-quarter growth will surpass the Bank of Canada's 1 percent forecast. But the rally ran out of steam as crude oil prices turned lower. "Let's attribute today's price action to position squaring at the end of a fairly volatile week" said Jack Spitz, managing director of foreign exchange at National Bank Financial. U.S. crude prices settled at $39.44 a barrel, down 1.9 percent. Retail sales rose 2.1 percent in January, much better than the 0.6 percent gain analysts had expected. "The retail sales number was a barnburner," said Nick Exarhos, economist at CIBC Capital Markets. The implied probability of a Bank of Canada rate cut by year-end dipped to 34 percent. It had been 85 percent just one month ago. The data vindicated the Bank of Canada's decision to keep interest rates unchanged in January, said Andrew Kelvin, senior rates strategist at TD Securities. Speculators further cut bearish bets on the Canadian dollar from extreme levels seen in January, Commodity Futures Trading Commision (CFTC) data showed. Net short Canadian dollar positions fell to 16,826 contracts in the week ended March 15 from 25,781 in the prior week. The Canadian dollar ended at C$1.3037 to the greenback, or 76.70 U.S. cents. That was weaker than Thursday's close of C$1.2989, or 76.99 U.S. cents. The currency's weakest level on Friday was C$1.3043, while it touched its strongest level since Oct. 19 at C$1.2924. Canada's consumer price inflation report, typically a major driver for the market, was overshadowed by the retail sales data. The annual inflation rate slowed to 1.4 percent in February as a drop in gasoline prices pulled inflation away from the mid-point of the Bank of Canada's 2.0 percent target. Canadian government bond prices were mixed across the maturity curve, with the two-year price down 2 Canadian cents to yield 0.542 percent and the benchmark 10-year flat to yield 1.289 percent. The Canada-U.S. two-year bond spread was 3.8 basis points less negative at -29.7 basis points, while the 10-year spread was 2.5 basis points less negative at -58.8 basis points as Canadian government bonds underperformed. (Reporting by Fergal Smith; Editing by Paul Simao and Meredith Mazzilli)
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