CANADA FX DEBT-C$ ends week down 1.2 pct after slip in inflation

Fri Apr 19, 2013 4:54pm EDT

* C$ at C$1.0263 vs US$, or 97.44 U.S. cents; falls 1.2 pct
in week
    * March inflation slowed to 1.0 pct from 1.2 pct in Feb
    * CIBC suggests possibility Fed could hike before Bank of
Canada
    * Bond prices mostly modestly lower

    By Alastair Sharp
    TORONTO, April 19 (Reuters) - The Canadian dollar weakened
slightly against its U.S. counterpart on Friday to end a dismal
week for the currency, as domestic inflation data for March came
in lower than the prior month.
    The subdued end to the week contrasted with a sharp fall on
Monday that helped push the currency to a 1.2 percent loss for
the week as a string of commodity prices plummeted.
    The currency also slipped on Wednesday after outgoing Bank
of Canada Governor Mark Carney slashed growth forecasts, but
held on to a hawkish bent in one of his last major appearances
as head of the central bank.
    Analysts said attention will now turn to who may replace him
and whether fresh data supports the revised view.
    "Now we heard the last of Carney's regime on Wednesday, the
market will turn to who assumes his role and how hawkish or
dovish they are," said Don Mikolich, executive director of
foreign exchange sales at CIBC World Markets.
    The highlight on Canada's data front for next week is a
reading of retail sales on Tuesday. 
    "We'll be looking to see if the growth projections are
achievable," Mikolich said, after the central bank slashed its
outlook to 1.5 percent growth for this year. 
    Economists at CIBC published a note on Friday suggesting the
U.S. Federal Reserve, still actively engaged in unconventional
monetary easing, could start raising interest rates before the
Bank of Canada, which is still holding on to a hawkish tone that
puts it at odds with its peers in other developed economies.
    If such a view becomes more popular it would heap additional
pressure on the loonie, as Canada's currency is colloquially
known. 
    The annual inflation rate last month slowed to 1.0 percent
from 1.2 percent in February, further underlining how little
pressure there is on the Bank of Canada to raise rates any time
soon. 
    "After quite a bit of volatility in the prior few months,
Canadian inflation has shown its true colors a little more
clearly this month - and those colors are pretty bland. For a
change there wasn't a big surprise," said Doug Porter, chief
economist at BMO Capital Markets.
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the
announcement traders trimmed their very small bets on an
interest rate cut later this year. 
    The Canadian dollar ended the week changing hands
at C$1.0263 to the greenback, or 97.44 U.S. cents, compared with
Thursday's North American close at C$1.0260, or 97.47 U.S.
cents.
    Canadian government bond prices were mostly modestly lower
across the curve, with the two-year bond unchanged
with a yield of 0.940 percent, while the benchmark 10-year bond
 shed 3 Canadian cents to yield 1.709 percent.
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