CANADA FX DEBT-C$ strengthens on firm domestic data, higher oil prices

* Canadian dollar at C$1.2655, or 79.02 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, April 22 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday after
stronger than expected domestic data and as oil prices rose.
    Canadian retail sales unexpectedly climbed in February after
economists has expected a drop, while core inflation was more
robust than expected in March.
    "It certainly does underscore the surprising resilience we
have seen in the Canadian economy over the last few months of
data," said Andrew Kelvin, senior rates strategist at TD
    Oil prices rose as market sentiment turned more upbeat
despite persistent oversupply. U.S. crude prices were up
1.34 percent to $43.76 a barrel. 
    The currency has rallied 16 percent since falling to a
12-year low in January, helped by a recent rebound in oil prices
and amid reduced expectations for a Bank of Canada rate cut.
    The implied probability of a Bank of Canada hike this year
rose to more than 10 percent from near zero before the data,
overnight index swaps (OIS) showed. At the start of March, the
OIS market had implied a more than 50 percent chance of a cut.
    At 9:27 a.m. EDT (1327 GMT), the Canadian dollar 
was trading at C$1.2655 to the greenback, or 79.02 U.S. cents,
stronger than Thursday's official close of C$1.2727, or 78.57
U.S. cents.
    The currency's strongest level of the session was C$1.2641,
while its weakest level was C$1.2758. The loonie made a
nine-month high on Wednesday at C$1.2593.
    Canadian retail sales unexpectedly rose in February,
climbing 0.4 percent on higher motor vehicle and parts sales,
data from Statistics Canada showed.
    "The retail sales are an even stronger beat on the details
because it was all volumes," said Derek Holt, economist at
    Canada's annual inflation rate fell to 1.3 percent in March
from the previous month's 1.4 percent, though the decline was
not as steep as analysts had forecast. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 6
Canadian cents to yield 0.666 percent and the new benchmark
10-year falling 36 Canadian cents to yield 1.495
    The Canada-U.S. 10-year spread was 3.5 basis points less
negative at -37.9 basis points as Canadian government bonds
underperformed. It was the smallest gap since Jan. 28 last year.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)