November 17, 2017 / 2:51 PM / 3 years ago

CANADA FX DEBT-C$ hits 10-day low as data cools rate hike prospects

    * Canadian dollar at C$1.2800, or 78.13 U.S. cents
    * Canada's annual inflation rate falls to 1.4 percent in
    * Loonie touches its weakest since Nov. 7 at C$1.2815
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, Nov 17 (Reuters) - The Canadian dollar weakened to
a 10-day low against its U.S. counterpart on Friday after data
showing subdued domestic inflation reduced expectations for
further interest rate hikes by the Bank of Canada through the
first quarter of next year.
    Canada's annual inflation rate decreased to 1.4 percent last
month from 1.6 percent in September, in line with economists'
forecasts, while a recent uptrend in the Bank of Canada's
measures of core inflation stalled.             
    The report was slightly "dovish" due to the potential for
those core measures to plateau in the near term, said Derek
Holt, head of capital markets economics at Scotiabank.
    Chances of another rate hike by the Bank of Canada by March
slipped to about 60 percent from 70 percent before the data, the
overnight index swaps market indicated.           
    The central bank raised rates in July and September for the
first time in seven years but has not done so since because of
worries about a number of uncertainties for the outlook of the
economy, including renegotiation of the North American Free
Trade Agreement.
    The fifth round of NAFTA talks begin on Friday in Mexico and
continue through Tuesday.    
    Canada is open to a Mexican proposal to review the trade
agreement every five years instead of terminating it
automatically if it is not renegotiated, as the United States
has demanded, two government sources said on Thursday.
    At 9:25 a.m. ET (1425 GMT), the Canadian dollar          was
down 0.3 percent at C$1.2800 to the greenback, or 78.13 U.S.
cents. It touched its weakest since Nov. 7 at C$1.2815.
    The loonie lost ground despite an increase in the price of
oil, one of Canada's major exports. U.S. crude        was up
1.34 percent at $55.88 a barrel.             
    The Canadian dollar is unlikely to recapture its tight link
with the price of oil, which is far removed from levels needed
to affect investment in Canada's energy sector, economists and
strategists said.                     
    In separate data, lending to Canadian small businesses
cooled in September after climbing earlier in the year.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 6 Canadian cents to yield
1.449 percent and the 10-year             climbing 27 Canadian
cents to yield 1.941 percent.
    The gap between Canada's 2-year yield and its U.S.
equivalent widened by 3.6 basis points to a spread of -26.8
basis points.

 (Reporting by Fergal Smith; Editing by Lisa Von Ahn)
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