CANADA FX DEBT-C$ weakens after big drop in retail sales

* Canadian dollar at C$1.2527, or 79.83 U.S. cents
    * Big drop in retail sales boosts odds of rate cut
    * Bond prices higher across maturity curve

    By Andrea Hopkins
    TORONTO, Feb 20 (Reuters) - The Canadian dollar 
weakened to session lows on Friday after data showed retail
sales dropped by a more-than-expected 2.0 percent in December,
the largest decline since April 2010, boosting expectations for
another rate cut by the central bank.
     The drop in retail sales in what is typically a strong
month dwarfed the expected 0.4 percent decline and wiped out
November's 0.4 percent gain. The data from Statistics Canada
showed cheaper gasoline and an apparent shift of purchases to
Black Friday in November drove the decline. 
    "The large disappointment in retail sales has increased the
expectation that we could see another interest rate cut in
Canada, and weighed heavily on the Canadian dollar," said
Camilla Sutton, chief currency strategist at Scotiabank.
    At 9:14 a.m. (1414 GMT) the Canadian dollar was at
C$1.2527 against the U.S. dollar, or 79.83 U.S. cents, well
below Thursday's North American session close at C$1.2498 to the
greenback, or 80.01 U.S. cents.
    It weakened to a session low $1.2539 shortly after the
retail data was released.
    A surprise interest rate cut last month and persistent
weakness in the price of crude oil has weighed on Canada's
currency as investors worry cheap oil could push domestic
inflation into negative territory. Canada is a major oil
    Agathe Côté, a deputy governor at the central bank, said in
a speech on Thursday there was no need to fear oil-related
deflation and that the next interest rate decision due on March
4 had not been predetermined. 
    But Sutton said the Canadian dollar was likely to remain
under pressure heading into next week, anticipating a speech on
Tuesday by Bank of Canada Governor Stephen Poloz and one on the
same day by U.S. Federal Reserve Chair Janet Yellen.
    "I suspect what we'll continue to see (today) and continue
to see into next week is an upward trend in the U.S. dollar
generally," said Sutton. "I suspect the takeaway from (Tuesday's
speeches) is ongoing downward pressure on the Canadian dollar."
    Sutton said the Canadian currency had likely already hit its
strongest point of the day against the U.S. dollar at C$1.2422
and could test Thursday's weak point at C$1.2556.
    Canadian government bond prices were higher across the
maturity curve, with the two-year rising 10 Canadian
cents to yield 0.379 percent. The benchmark 10-year 
rose 76 Canadian cents to yield 1.393 percent. 

 (Reporting by Andrea Hopkins; Editing by Meredith Mazzilli)