C$ gains for second week as inflation data boosts rate-hike bets

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Friday, but was on track to gain for the second straight week as data showing a pickup in underlying inflation boosted bets for a Bank of Canada interest rate hike next month.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, Ontario, Canada, January 23, 2015. REUTERS/Mark Blinch/File Photo

Canada’s annual inflation rate dipped to 2.8 percent in August from 3.0 percent in July, the seventh consecutive month it has exceeded the Bank of Canada’s 2.0 percent target, Statistics Canada data indicated. All of the central bank’s core inflation measures were 2.0 percent or higher, for the first time since February 2012.

“I thought the inflation data was pretty robust,” said Amo Sahota, director at Klarity FX in San Francisco. “This keeps the market on track for looking at some more Canadian rate hikes.”

The Bank of Canada has raised interest rates four times since July 2017. Chances of another hike in October rose to nearly 90 percent from 85 percent before the data, the overnight index swaps market indicated. BOCWATCH

Separate data showed that Canadian retail trade rose 0.3 percent in July from June.

At 3:31 p.m. (1931 GMT), the Canadian dollar CAD=D4 was trading 0.1 percent lower at C$1.2916 to the greenback, or 77.42 U.S. cents.

The currency, which touched its strongest in more than three months on Thursday at 1.2885, traded in a range of 1.2886 to 1.2943.

For the week, the loonie is on track to rise 0.9 percent, building on a 1 percent gain last week. The currency has been boosted by a pick up in risk appetite and optimism that a deal would be reached to renew the North American Free Trade Agreement.

Still, the United States is getting “very, very close” to having to move forward on its trade deal with Mexico without Canada, White House economic adviser Kevin Hassett said.

Canada sends 75 percent of its exports to the United States, so its economy could be hurt if a deal is not reached.

The U.S. dollar .DXY rose against a basket of currencies as fears that Britain would leave the European Union without a trade deal pressured sterling GBP=.

The price of oil, one of Canada's major exports, climbed ahead of a meeting of OPEC and other large crude exporters. U.S. crude oil futures CLc1 settled 0.7 percent higher at $70.78 a barrel.

Canadian government bond prices were lower across the yield curve, with the 10-year CA10YT=RR falling 8 Canadian cents to yield 2.431 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum and Susan Thomas