CANADA FX DEBT-C$ tumbles as rate cut bets rise after domestic data

* Canadian dollar at C$1.3142, or 76.09 U.S. cents
    * Bond prices higher across the yield curve

    TORONTO, Sept 23 (Reuters) - The Canadian dollar tumbled
against its U.S. counterpart on Friday as a investors raised
bets on a Bank of Canada rate cut after weaker-than-expected
domestic inflation and retail sales data.
    Canada's annual inflation rate in August fell to a 10-month
low of 1.1 percent, well below the 1.4 percent analysts had
forecast, while the core inflation rate fell to 1.8 percent from
2.1 percent, also lower than expected. 
    "The Bank of Canada's concerns about downside risks to
inflation seem to be materializing," said Derek Holt, head of
capital markets economics at Scotiabank.
    "The market will interpret this as keeping a greater risk of
a cut than a hike alive over the course of the next year," Holt
    The implied probability of a Bank of Canada rate cut by
mid-2017 jumped from less than 20 percent before the data to 35
percent, overnight index swaps data showed. 
    In other domestic data, retail trade unexpectedly fell 0.1
percent in July from June as gas station sales dropped for the
first time in four months. Sales were more robust in volume
terms, rising 0.3 percent. 
    At 9:26 a.m. EDT (1326 GMT), the Canadian dollar 
was trading at C$1.3142 to the greenback, or 76.09 U.S. cents,
weaker than Thursday's close of C$1.3062, or 76.56 U.S. cents.
    The currency's strongest level of the session was C$1.3030,
while its weakest was C$1.3157.    
    Oil seesawed after sources told Reuters that Saudi Arabia
could reduce its crude production should regional foe Iran cap
its own output this year. U.S. crude prices were
down 0.89 percent to $45.91 a barrel.
    Oil is one of Canada's major exports. 
    Canadian government bond prices were higher across the yield
curve, with the two-year price up 5 Canadian cents to
yield 0.544 percent and the benchmark 10-year rising
30 Canadian cents to yield 1.069 percent.
    The 10-year yield fell 2.1 basis points further below its
U.S. counterpart, leaving the spread at -55.2 basis points, as
Canadian government bonds outperformed.

 (Reporting by Fergal Smith; Editing by Meredith Mazzilli)