Canadian dollar steadies after hitting 1-year low; rate hike bets ebb

TORONTO (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Friday after hitting an earlier one-year low, as investors pared bets on a Bank of Canada interest hike next month after weaker-than-expected domestic inflation and retail sales data.

FILE PHOTO: U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

Canada’s annual inflation rate stayed unchanged at 2.2 percent in May, Statistics Canada data indicated, less than the 2.5 percent forecast by analysts.

Canadian retail sales in April dropped by 1.2 percent, in part due to bad weather that hit sales of autos and gardening equipment. Economists had predicted no change.

“It is just not a good batch of data,” said Andrew Kelvin, senior rates strategist at TD Securities. “Markets are probably interpreting this correctly.”

Chances of a Bank of Canada hike at the July 11 announcement fell to 54 percent from 69 percent before the data, the overnight index swaps market indicated. BOCWATCH

At 9:23 a.m. EST (1323 GMT), the Canadian dollar CAD=D4 was trading nearly unchanged at C$1.3314 to the greenback, or 75.11 U.S. cents. The currency touched its weakest intraday level since June 12, 2017 at C$1.3384.

The loonie has also been pressured this week by slow-moving talks to revamp the North American Free Trade Agreement and an uncertain outlook for global trade.

But U.S. stocks rose on Friday in the absence of any significant developments in the China-U.S. trade fight.

Canada runs a current account deficit so its currency tends to benefit from improved risk appetite.

The price of oil, one of Canada’s main exports, rose as OPEC agreed to a modest increase in output to compensate for losses in production at a time of rising global demand.

U.S. crude CLc1 prices were up 2.7 percent at $67.29 a barrel.

Canadian government bond prices were higher across a steeper yield curve, with the two-year CA2YT=RR up 5.5 Canadian cents to yield 1.797 percent and the 10-year CA10YT=RR rising 11 Canadian cents to yield 2.128 percent.

The 2-year yield fell 4.3 basis points further below its U.S. equivalent to a spread of -75.7 basis points, its widest gap since March 2007.

On Thursday, the Bank of Canada released its quarterly bond schedule. It plans to auction nine regular issues of Government of Canada bonds and one issue of real return bonds.

Reporting by Fergal Smith; Editing by Phil Berlowitz