April 17, 2019 / 8:51 PM / a year ago

CANADA FX DEBT-C$ retreats from 4-week high as market distrusts inflation uptick

 (Adds strategist quotes and details throughout; updates prices)
    * Canadian dollar near flat against the greenback
    * Annual inflation rate edges up to 1.9% in March
    * Trade deficit falls in February to C$2.9 billion
    * Canadian bond prices fall across the yield curve

    By Fergal Smith
    TORONTO, April 17 (Reuters) - The Canadian dollar was little
changed against its U.S. counterpart on Wednesday, pulling back
from an earlier four-week high as investors doubted that a
pick-up in domestic underlying inflation would be sustained.
    Canada's annual inflation rate edged up to 1.9% in March
from 1.5% in February, while two out of three of the Bank of
Canada's measures of core inflation edged up into the 2.0%
range, Statistics Canada data indicated.             
    The loonie notched its strongest intraday level since March
20 at 1.3275 after the data, but then gave back all its gains.
    "The market is skeptical that there is a true uptick in core
inflation," said Adam Button, chief currency analyst at
ForexLive. "Looking forward, if the acceleration in core
inflation continues the market will have to change course."
    A shift in sentiment could see expectations unwind for an
interest rate cut this year, Button said.
    Chances of a policy easing by December fell to 20% from
about 25% before the data, the overnight index swaps market
    Separate data from Statistics Canada showed Canada's trade
deficit declined for a second straight month in February,
falling slightly to C$2.9 billion, after reaching a record high
of C$4.8 billion in December 2018.                 
    At 4:02 p.m. (2002 GMT), the Canadian dollar          was
trading nearly unchanged at 1.3346 to the greenback, or 74.93
U.S. cents.
    The pullback for the loonie from an earlier four-week high
came as the price of oil, one of Canada's major exports, turned
    U.S. crude oil futures        settled down 0.5% at $63.76 a
barrel as U.S. government data showed inventories drew down less
than an industry report had suggested on Tuesday, offsetting
upbeat economic reports from China.             
    A right-of-center party swept to power in Canada's main
oil-producing province of Alberta on Tuesday and attacked Prime
Minister Justin Trudeau's efforts to fight climate change,
raising tension just months ahead of a federal election.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 4.5 Canadian cents to
yield 1.658% and the 10-year             falling 14 Canadian
cents to yield 1.799%.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 3.4 basis points to a spread of 74.6
basis points in favor of the U.S. bond.

 (Reporting by Fergal Smith; Editing by Bill Trott and Grant
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