CANADA FX DEBT-C$ weakens on retail data, oversold market

* Ends at C$0.9914 vs U.S. dollar, or $1.0087
    * Currency strategists say currency oversold
    * Retail sales fall unexpectedly
    * Bank of Canada tightening bias remains
    * Bond prices rise across the curve

    By Solarina Ho
    TORONTO, Aug 22 (Reuters) - The Canadian dollar continued
its retreat on Wednesday from the 3-1/2 month highs of the
previous session, at one point hitting its weakest level in more
than a week against the U.S. currency after the government
reported an unexpected drop in retail sales.
    The decline in June sales confirmed a weaker trend in
consumer spending that will likely trim overall growth in the
second quarter and raises questions about the Bank of Canada's
hawkish slant on monetary policy. 
    "The market's been heavily oversold over the last few weeks
in particular, so seeing a corrective bounce isn't really
untoward. The charts were suggesting we're going to see a short
term bounce," said Gareth Sylvester, director at Klarity FX.
    He noted that retail sales data was the latest in a string
of key economic indicators all pointing toward a softening
Canadian economic outlook.
    "I think moving forward, if the economic indicators continue
to show signs of weakening economic outlook, I think the Bank of
Canada could certainly shift into a more neutral stance. That
might just take the edge off some of the CAD's appeal," said
    Doubts about Europe's progress on its debt crisis and weak
export data from Japan also underscored the problems facing the
global economy. 
    The Canadian dollar closed at C$0.9914 versus the
U.S. dollar, or $1.0087, weaker than Tuesday's North American
session close at C$0.9897, or $1.0104. After the retail sales
data, it drifted as low as C$0.9948, or $1.0052, its softest
level since Aug. 10.
    "We're running out of positive steam and the next wave of
support to redefine the market," said David Tulk, chief Canada
macro strategist at TD Securities.
    The Canadian currency did ease away from session lows after
minutes from the U.S. Federal Reserve's August meeting suggested
another round of monetary stimulus could be imminent unless the
economy improved considerably. 
    While the meeting was held before a recent improvement in
U.S. economic data, policymakers appeared firm in their
dissatisfaction with the current outlook.
    Bank of Canada's Mark Carney spoke to the Canadian Auto
Workers union and to reporters earlier on Wednesday and -
repeating similar language used last month when keeping rates
unchanged - said "some modest withdrawal of the present
considerable monetary policy stimulus" might become appropriate.
    The Central bank head also said the strong Canadian dollar
was not the main cause of the country's poor export performance,
noting the over-exposure to the mature and sluggish U.S. market
was a more important factor. 
    "Governor Carney stuck to his guns despite the softening
Canadian economy," Krishen Rangasamy, economist at National Bank
Financial Group, said in a note to clients.
    "The downplaying of the strong Canadian dollar and the
suggestion that the Bank will support efforts by the federal
government on the housing market, signal that the BoC is not
prepared to lower interest rates. The tightening bias remains." 
    Canadian bond prices picked up across the curve, with the
two-year bond adding 12 Canadian cents to yield 1.122
percent and the benchmark 10-year bond gaining 74
Canadian cents to yield 1.850 percent.