CANADA FX DEBT-C$ weakens to 6-month low as inflation cools

* C$ hits C$1.0092 versus US$, or $0.9909
    * Weakest vs US$ since July, weakest vs euro since Dec 2011
    * Tame inflation data cools rate hike expectations

    By Alastair Sharp
    TORONTO, Jan 25 (Reuters) - Canada's dollar hit its weakest
level in six months against the U.S. currency on Friday as a
limp December inflation report, arriving in the wake of a dovish
Bank of Canada statement, pushed rate hike expectations even
further into the future.
    The currency is on track for a 1.5 percent dip this week,
the sharpest loss of any major currency versus the U.S. dollar
and its worst weekly performance since May, as it shrugs off
supportive signs in commodity and equity markets.
    "The Canadian dollar is not in a very good space at all,"
said Shaun Osborne, chief currency strategist at TD Securities.
    Canada's annual inflation rate was stuck at a three-year low
of 0.8 percent in December, Statistics Canada data indicated on
Friday, far below the central bank's target and market
    The reading added further support to the Bank of Canada's
Wednesday statement that future rate hikes had been delayed by
excess economic capacity, soft inflation and stabilizing
household debt. 
    "I don't think it will have quite the influence (on the
currency) of the bank's words, but it gives it a further shove
down the hill," said Doug Porter, deputy chief economist at BMO
Capital Markets.
    The currency hit C$1.0092 to the greenback, or
$0.9909, shortly after the inflation data release, its weakest
level since July 27.
    It trimmed those losses slightly to change hands at
C$1.0073, or $0.9928, by 9:24 a.m. (1424 GMT), after closing
Thursday's North American session at C$1.0029, or $0.9971.
    Scotiabank chief currency strategist Camilla Sutton said the
break through November lows positions the currency in a weaker
range but that it would be difficult to break through C$1.01.
    "I would suggest it's probably more likely that we see some
resistance at the psychological C$1.01 level before we get into
some of these summer levels" which range between C$1.02 and
C$1.04, she said.
    The Canadian currency has fared particularly poorly against
the euro since the Bank of Canada news, losing some
2.6 percent as the single currency benefits from strong German
data and banks paying back a larger chunk of ECB crisis loans
than expected. 
    One euro can now buy C$1.3555, the Canadian currency's
weakest level since December 2011.
    TD's Osborne also said that recent selling of the Canadian
currency was exaggerated, especially given North American equity
markets are hitting their highest levels in years and Canadian
two-year debt maintains a roughly 90 basis-point spread over its
U.S. equivalent.
    "Those correlations seem to be breaking down at the moment,"
he said.
    The price of a two-year bond, which is especially
influenced by near-term interest rate expectations, was flat to
yield 1.124 percent, while the benchmark 10-year bond
 fell 35 Canadian cents to yield 1.928 percent.