CANADA FX DEBT-C$ weakest since July, hurt by soft data

* C$ drops to lowest since July after weak wholesale data
    * C$ hits C$1.0138 vs US$, bond prices rise across curve

    By Alastair Sharp
    TORONTO, Feb 19 (Reuters) - The Canadian dollar fell to its
lowest level since July against its U.S. counterpart on Tuesday
as weak economic data and concerns about U.S. budget talks, the
Canadian housing sector and energy prices weighed.
    Domestic wholesale trade fell more sharply than expected in
December and data showed foreigners reduced holdings of Canadian
    Looking further ahead, inflation and retail sales data due
out on Friday could add to selling pressure on the loonie, as
Canada's currency is colloquially known. 
    "Weakness is on the cards for retail sales, and inflation is
likely to print a little bit lower," said Joe Manimbo, a senior
market analyst at Western Union Business Solutions in
Washington. "These are factors that are highlighting the fragile
state of Canada's recovery."
    The Canadian dollar fell as low as C$1.0138 versus
the U.S. dollar, or 98.64 U.S. cents, its weakest point since
July 26.
    It closed at C$1.0118, or 98.83 U.S. cents, from Friday's
North American session close at C$1.0061, or 99.39 U.S. cents.
Monday was a holiday in most of Canada and the United States.
    Camilla Sutton, chief currency strategist at Scotiabank in
Toronto, said three negative factors were pushing the Canadian
dollar lower in the short term, starting with U.S. budget
worries that are once again on the horizon.
    "The threat of sequestration being triggered March 1 is
weighing on the U.S. growth outlook, so that would be negative
for (the Canadian dollar)," Sutton said. "The second (factor) is
we seem to have a global focus on the Canadian housing sector
and how that could potentially negatively impact GDP.
    "Thirdly, I think, (is) the ongoing focus on the energy
sector in Canada, and how, even though the spread between Brent
and Western Canadian Select is off its high, it's still elevated
on a historical basis."
    While U.S. legislators temporarily averted a series of
automatic spending cuts and tax hikes, the compromise on
across-the-board spending cuts, known as sequestration, only
postponed until March 1 a resolution to the congressional budget
    The U.S. budget crisis typically raises fears that spending
cuts and tax hikes will slow U.S. growth, which in turns hurts
the economy in Canada, whose largest trading partner is the
United States.
    Canada's slowing housing sector is also expected to weigh on
economic growth as homebuilding and home buying cools from the
red-hot levels of early last year. While many economists believe
the sector will manage a soft landing, others fear a crash.
    Manimbo said C$1.01 could become a fresh support level for
the greenback against the Canadian dollar, after providing stiff
resistance for several weeks, if the tone of U.S. Federal
Reserve minutes out on Wednesday shows less support for a
large-scale bond-buying program.
    A top Fed official told Reuters on Tuesday that the monetary
stimulus was still appropriate despite the U.S. economy's
brightening prospects. 
    Meanwhile, if sluggish Canadian data becomes the norm,
investors will increasingly doubt the ability of the central
bank to maintain its modestly hawkish bias.
    "There's no guarantee that the next move by the Bank of
Canada will be a hike," Manimbo said. 
    Canadian government bond prices fell across the curve, with
the two-year bond down 1 Canadian cent to yield 1.138
percent and the benchmark 10-year bond slipping 6
Canadian cents to yield 2.024 percent.
    Canadian bonds largely outperformed their U.S. counterparts
following the unexpectedly weak Canadian data.