CANADA FX DEBT-C$ hits 8-month low vs US$ on weak retail, CPI data

* C$ at C$1.0208 vs US$, or 97.96 U.S. cents
    * C$ touches C$1.0256, or 97.50 U.S. cents, lowest since
June 2012
    * Canada January inflation lowest in more than 3 years
    * Largest drop in retail sales in nearly three years in
    * Bond yields fall across curve

    By Solarina Ho
    TORONTO, Feb 22 (Reuters) - The Canadian dollar touched its
weakest level against the U.S. currency in almost eight months
on Friday, after weaker-than-forecast inflation and retail sales
data reduced the likelihood that the Bank of Canada will raise
interest rates this year.
    Canada's economy registered its lowest inflation in more
than three years in January and the largest decline in retail
sales in almost three years in December, a double whammy that
weakened the currency and darkened the country's growth outlook.
    "Given that, the move in the currency was justified. As the
day wore on, you got a little bit of an updraft as equity
markets improved. Overall though, I think there's more serious
threat from further weaker domestic data," said Mark Chandler,
head of Canadian fixed income-and currency strategy at RBC
Capital Markets.
    The data suggested that already moderate expectations for
fourth-quarter growth might be too optimistic and that the Bank
of Canada is under no pressure to raise interest rates.
    "Basically this combination of data just piles on what had
already been a weak footing for the Canadian dollar," said Doug
Porter, chief economist at BMO Capital Markets.
    Friday's dismal numbers, along with other unexpectedly weak
economic data over the past two weeks have spurred a third of
Canada's primary dealers to push back their forecasts for when
the Bank of Canada will next raise rates, according to a Reuters
poll on Friday.  
    The Canadian dollar finished Friday's North American session
at C$1.0208 against the greenback, or 97.96 U.S. cents, after
touching C$1.0256, or 97.50 U.S. cents, its weakest level since
late June, 2012. It was softer than Thursday's close at
C$1.0187, or 98.16 U.S. cents.
    It was also underperforming against most major currencies,
including the Australian dollar -its commodities-linked
counterpart - where it touched its weakest level in nearly seven
    A slew of data next week, including fourth-quarter GDP data
is expected to keep the currency under pressure.
    "I don't see anything around the corner that's going to
provide much in the way of relief," said Chandler.
    David Bradley, director of foreign exchange trading at
Scotiabank, said the currency could trade as weak as C$1.0350 in
the near term.
    Government bond prices, meanwhile, rose across the curve.
The price of a two-year Canadian government bond 
climbed after the data, to 7 Canadian cents, yielding 1.071
percent, while the benchmark 10-year bond climbed 33
Canadian cents, yielding 1.946 percent.
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the data
traders eliminated already small bets on a rate increase in late