CANADA FX DEBT-C$ slips as data reduces rapid rate hike risk

 (Adds market comment, speculative interest data, updates
    * Canadian dollar at C$1.2338, or 81.05 U.S. cents
    * Bond prices mixed across flatter yield curve
    * Annual CPI rises 1.4 percent in August
    * Retail sales volumes fall 0.2 percent in July

    By Alastair Sharp
    TORONTO, Sept 22 (Reuters) - The Canadian dollar slipped
slightly 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.
    "Employment and other data has been quite solid, but
inflation has been lagging," said Don Mikolich, executive
director for foreign exchange sales at CIBC Capital Markets.
    He said that he would be looking for clues to the Bank of
Canada's likely interest rate trajectory when Governor Stephen
Poloz speaks publicly next Wednesday, for the first time since
two back-to-back rate hikes.         
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading at C$1.2338 to the greenback, or 81.05 U.S. cents, down
0.1 percent. 
    The slip for the loonie came as the U.S. dollar       
buckled against the yen amid simmering tensions on the Korean
    The currency traded in a range of C$1.2255 to C$1.2351 on
the day, and declined 1.2 percent since the start of the week.
    Retail sales, meanwhile, 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 year."
    Chances of another rate hike in October are running at 41
percent, the overnight index swaps market indicated.           
    Speculators have meanwhile raised bullish bets on the
loonie, data from the U.S. Commodity Futures Trading Commission
and Reuters calculations showed. As of Sept. 19, Canadian dollar
net long positions had climbed to 58,846 contracts, the highest
in six weeks, from 50,499 contracts a week earlier.
    Canadian government bond prices were mixed across a flatter
yield curve, with the two-year            down 2 Canadian cents
to yield 1.605 percent and the 10-year             adding 7
Canadian cents to yield 2.113 percent.
    The gap between Canada's two-year yield and its U.S.
equivalent widened by 2.1 basis points to 17 basis points.      

 (Reporting by Alastair Sharp, Additional reporting by Fergal
Smith, Editing by Rosalba O'Brien)