TORONTO: The Canadian dollar weakened to a
two-week low against its U.S. counterpart on Friday after tame inflation data
tempered prospects for Bank of Canada interest rate hikes, but losses for the
currency were pared as oil rallied more than 2 percent.
Canada's annual inflation rate decreased to
1.4 percent last month from 1.6 percent in September, while a recent uptrend in
the Bank of Canada's measures of core inflation stalled.
The report was slightly "dovish"
due to the potential for those core measures to plateau in the near term, said
Derek Holt, head of capital markets economics at Scotiabank.
Chances of another rate hike by the Bank of
Canada through March slipped to about 60 percent from 70 percent before the
data, the overnight index swaps market indicated.
The central bank has held off from raising
rates since September because of worries about a number of uncertainties for
the outlook of the economy, including renegotiation of the North American Free
Trade Agreement (NAFTA).
A key round of talks to update NAFTA formally
opened on Friday with Canada and Mexico seeking to show more flexibility about
addressing hardline U.S. demands that they had previously dismissed as
unworkable.
The decision this week by Canada's central
bank to add more speeches from policymakers to its schedule after an interest
rate decision will not do enough to provide better forward guidance on monetary
policy, analysts said.
U.S. crude oil prices settled 2.6 percent
higher at $56.55 a barrel. Oil is one of Canada's major exports.
At 4 p.m. ET (2100 GMT), the Canadian dollar
was trading at C$1.2765 to the greenback, or 78.34 U.S. cents, down 0.1
percent. It touched its weakest level since Nov. 3 at C$1.2824.
For the week, the loonie fell 0.6 percent.
Speculators have cut bullish bets on the
Canadian dollar, data from the U.S. Commodity Futures Trading Commission and
Reuters calculations showed. As of Nov. 14, net long positions had slipped to
47,335 contracts from 50,889 a week earlier.
In October, bullish bets had reached 76,392
contracts, the highest in five years.
Canadian government bond prices were higher
across the yield curve, with the two-year up 4.5 Canadian cents to yield 1.457
percent and the 10-year rising 31 Canadian cents to yield 1.936 percent. The
gap between Canada's 2-year yield and its U.S. equivalent widened by 3.6 basis
points to a spread of -26.8 basis points.
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