September 22, 2017 / 1:45 PM / 3 years ago

CANADA FX DEBT-C$ pares some gains as data reduces rapid rate hike risk

    * Canadian dollar at C$1.2310, or 81.23 U.S. cents
    * Bond prices higher across the yield curve
    * Annual CPI rises 1.4 percent in August
    * Retail sales volumes fall 0.2 percent in July

    By Fergal Smith
    TORONTO, Sept 22 (Reuters) - The Canadian dollar pared some
gains against its U.S. counterpart on Friday after domestic data
indicated the country's central bank does not have to raise
rates rapidly.
    Canada's annual inflation rate rose to 1.4 percent last
month from 1.2 percent in July. That was slightly below
economists' forecasts of 1.5 percent, although two out of three
of the central bank's core inflation measures also increased.
    Retail sales rose 0.4 percent in July, topping economists'
expectations for a gain of 0.1 percent, but volumes showed a 0.2
percent decline.                     
    "The Bank (of Canada) is going to be looking at the retail
data as maybe an indication that they don't need to go on an
exceptionally quick path toward normalization," said Andrew
Kelvin, senior rates strategist at TD Securities. "It's not so
weak a print that it's going to preclude further tightening this
    The central bank raised rates earlier in September for the
second time in three months after Canada's economic growth
accelerated this year.
    Chances of another rate hike in October edged lower, to 38
percent from 42 percent before the data, the overnight index
swaps market indicated.           
    At 9:23 a.m. EDT (1323 GMT), the Canadian dollar         
was trading at C$1.2310 to the greenback, or 81.23 U.S. cents,
up 0.1 percent.
    The currency traded in a range of C$1.2255 to C$1.2334.
    Modest gains for the loonie came as the U.S. dollar       
buckled against the yen amid simmering tensions on the Korean
    The price of oil, one of Canada's major exports, dipped as
investors waited to see whether major producers meeting in
Vienna would back an extension to output cuts beyond March.
    U.S. crude        was down 0.26 percent at $50.42 a barrel.
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries. The two-year           
gained 3.5 Canadian cents to yield 1.574 percent, and the
10-year             climbed 21 Canadian cents to yield 2.096
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 1 basis point to 13.9 basis points.      

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