December 21, 2010 / 9:26 PM / 10 years ago

CANADA FX-C$ drops after data dims outlook for rate rise

 * C$ closes at 98.28 U.S. cents
 * Bond prices rise across the curve
 * Canada Nov inflation eases beyond expectations
 * Canada Oct retail sales stronger than forecast
 * Bank of Canada seen holding rates steady
  (Updates to close, adds details, quotes)
 By Claire Sibonney
 TORONTO, Dec 21 (Reuters) - The Canadian dollar fell for a
fourth straight session against the greenback on Tuesday as
slowing inflation raised bets that Canadian interest rates
could stay on hold longer than anticipated.
  Canada's annual inflation rate eased in November from a
two-year high the month before, likely to the relief of the
Bank of Canada, which wants to keep rates low until economic
recovery gains traction. [ID:nN21245612]
 Following the report, the currency CAD=D4 fell as low as
C$1.0207 to the U.S. dollar, or 97.97 U.S. cents, almost
matching the near-three-week trough it hit on Monday.
 The inflation data was followed by retail sales figures
that showed consumers kept a lid on spending in October.
 "You had some pretty negative data this morning in terms of
core CPI, which was softer than the market had expected, and
similarly retail sales were pretty soft under the surface, so
that's contributed to general weakness in the Canadian dollar,"
said David Tulk, senior macro strategist at TD Securities.
 Tulk noted the C$1.02 level is providing significant
support for the Canadian dollar.
 "Now we're sort of in this sideways range, basically
consolidating over the course of the day and probably all the
way through the end of the year," he added.
 The economic reports on Tuesday portrayed an economy that
is growing more slowly than in the first half of the year and
is free of inflationary pressures, hardening the view that the
Bank of Canada will leave its benchmark lending rate at 1
percent until after the first quarter of 2011.
 The Canadian currency ended the North American session at
C$1.0175 to the U.S. dollar, or 98.28 U.S. cents, lower than
Monday's close at C$1.0164 to the U.S. dollar, or 98.39 U.S.
 The currency was already weaker before Tuesday's data was
released, weighed down by news that Moody's had put Portugal on
review for a possible downgrade.
 A rally in the price of oil and North American equity
markets may have helped put a bottom under the currency's
losses, but did little to push it into positive territory.
 Steve Butler, director of foreign exchange trading at
Scotia Capital, echoed the view that the Canadian dollar looks
like it will continue to underperform amid thin volumes as the
end of the year approaches.
 "Once we get into the mid C$1.02s I think we'll probably
run into some reasonable interest to buy Canada ... but for now
it just feels like regardless of the data going into year-end
... Canada is going to be suffering a bit," he said.
 "This year it feels like there's some interest to
repatriate some U.S. dollars."
 Next in focus will be Canada's gross domestic product
figures for October, due on Thursday, with analysts polled by
Reuters calling for a 0.3 percent uptick. [ECONCA]
 Canadian bond prices were relatively flat, giving back much
of their early gains made on the weak data. They appeared to
track U.S. Treasury prices as buying momentum faded after the
U.S. Federal Reserve purchased $7.79 billion in
intermediate-dated debt. [US/]
 The two-year bond CA2YT=RR was up 1 Canadian cent to
yield 1.631 percent, while the 10-year bond CA10YT=RR gained
18 Canadian cents to yield 3.148 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)

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