April 21, 2017 / 8:55 PM / 3 years ago

CANADA FX DEBT-C$ weakens as cooler inflation slams rate hike talk

 (Adds currency strategist comment, updates prices to close)
    * Canadian dollar ends at C$1.3503, or 73.91 U.S. cents
    * Loonie falls 1.3 pct versus greenback over week
    * Notches lowest close since March 9
    * Bond prices higher across yield curve

    By Alastair Sharp
    TORONTO, April 21 (Reuters) - The Canadian dollar weakened
on Friday to close its worse week since early March versus its
U.S. counterpart, pressured by cooler-than-expected domestic
inflation and a slide in prices for oil, one of the country's
main exports.
    The loonie, as the Canadian currency is colloquially known,
fell 1.3 percent over the course of a week in which U.S. crude
notched its biggest drop in a month and Ontario introduced a
string of measures to cool Toronto's red-hot housing market.
    The Canadian dollar          settled at C$1.3503 to the
greenback, or 73.91 U.S. cents, weaker than Thursday's close of
C$1.3472, or 74.31 U.S. cents and its first close above C$1.35
since March 9.
    The losses on Friday came in the immediate aftermath of the
morning release of inflation data for March that showed price
growth pulling away from the central bank's target.             
    The annual rate fell to 1.6 percent from the previous
month's 2.0 percent, exceeding economists' forecasts for a
decline to 1.8 percent. 
    "It's a barometer of how much slack there is in the economy,
how little pricing power there is across the economy," said Eric
Theoret, currency strategist at Scotiabank. "We just don't have
any pressure on inflation because our economy is operating so
far below potential."
    Earlier this month, the central bank dropped its dovish bias
and said it was "decidedly neutral" even as it raised its growth
forecast for 2017.             
    "I just don't see the talk of rate hikes any time soon as
being credible," said Derek Holt, head of capital markets
economics at Scotiabank.    
    The currency remained under pressure through the session as
U.S. crude slumped below $50 a barrel on renewed concerns that
rising U.S production was cancelling out OPEC's efforts to
reduce a global glut.      
    Scotiabank's Theoret said that new housing measures
introduced this week by Ontario, which include a 15 percent tax
on property purchases by foreign buyers, added to the negative
    "Given the Canadian economy's dependence on housing, there
is a risk to the outlook as a result of the measures introduced
this week," he said.
    Canadian government bond prices were higher across the yield
curve, with the two-year            price up 4 Canadian cents to
yield 0.714 percent and the benchmark 10-year             rising
14 Canadian cents to yield 1.467 percent.

 (Additional reporting by Fergal Smith; Editing by Bernadette
Baum and Diane Craft)
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