CANADA FX DEBT-C$ softens as inflation cools to target level

TORONTO, Dec 19 (Reuters) - The Canadian dollar weakened against the U.S. currency on Friday after data showed the country’s annual inflation rate eased in November, suggesting the central bank will be in no hurry to raise interest rates.

Inflation cooled as gasoline prices tumbled, bringing the rate in line with the Bank of Canada’s target level. The annualized rate pulled back to 2.0 percent from October’s strong 2.4 percent, falling short of economists’ forecasts for 2.2 percent.

The Bank of Canada aims to keep inflation at 2 percent, the midpoint of its 1 to 3 per cent target range.

A Reuters poll last month showed the Bank of Canada was expected to defer an interest rate hike until late next year despite high household debt.

“It just reinforces the Bank of Canada, their thoughts that the higher inflation numbers were transitory. It seems like it’s playing out in their favor. That suggests they’ll be in no hurry to raise rates,” said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.

“The weaker trend in the Canadian dollar’s probably going to persist into next year.”

The Canadian dollar finished at C$1.1608 to the U.S. dollar, or 86.15 U.S. cents, weaker than Thursday’s close of C$1.1597, or 86.23 U.S. cents.

After a volatile five days that included the loonie’s retreat to its weakest level in 5-1/2 years, the currency was only marginally softer on the week.

It could see some outsized moves next Tuesday when a slew of U.S. data is released. Otherwise, Reitzes does not expect to see big swings in the currency for the remainder of the year as volumes thin out for the Christmas and New Year holidays.

Canadian government bond prices were mostly stronger. The two-year bond rose 1.5 Canadian cents to yield 1.012 percent, while the benchmark 10-year bond climbed 51 Canadian cents to yield 1.811 percent. (Reporting by Solarina Ho and Jeffrey Hodgson; Editing by Peter Galloway)