CANADA FX DEBT-C$ weakens as cooler inflation slams rate hike talk

    * Canadian dollar at C$1.3492, or 74.12 U.S. cents
    * Bond prices higher across much of the yield curve

    By Fergal Smith
    TORONTO, April 21 (Reuters) - The Canadian dollar weakened
on Friday against its U.S. counterpart as cooler-than-expected
domestic inflation reduced pressure on the Bank of Canada to
consider interest-rate hikes.    
    The annual rate fell to 1.6 percent from the previous
month's 2.0 percent, exceeding economists' forecasts for a
decline to 1.8 percent. The three measures of core inflation put
in place by the Bank of Canada last year remained tame.
    "I just don't see the talk of rate hikes any time soon as
being credible," said Derek Holt, head of capital markets
economics at Scotiabank.    
    The implied probability of a Bank of Canada rate hike by
year-end dipped to 23 percent from 25 percent before the report,
data from the overnight index swaps market showed.           
    Earlier this month, the central bank dropped its dovish bias
and said it was "decidedly neutral" even as it raised its growth
forecast for 2017.             
    At 9:05 a.m. ET (1305 GMT), the Canadian dollar          was
trading at C$1.3492 to the greenback, or 74.12 U.S. cents,
weaker than Thursday's close of C$1.3472, or 74.31 U.S. cents.
    The currency traded in a range of C$1.3459 to C$1.3498.
    On Thursday, the loonie touched its weakest in nearly
six-weeks at C$1.3500, pressured by a drop this week in the
price of oil on doubts that an Organization of the Petroleum
Exporting Countries-led production cut will restore balance to
an oversupplied market.             .    
    U.S. crude        prices were down 0.06 percent at $50.68 a
barrel on Friday. Oil is one of Canada's major exports.    
    Many currency pairs traded in a tight range as investors
prepared for the first round on Sunday of a tight French
presidential election race.                     
    Canadian government bond prices were higher across much of
the yield curve, with the 10-year             rising 16 Canadian
cents to yield 1.465 percent.
    The 10-year yield fell 0.9 of a basis point further below
its U.S. equivalent to a spread of -76.8 basis points.

 (Reporting by Fergal Smith; Editing by Bernadette Baum)