CANADA FX DEBT-Canadian dollar posts weekly decline ahead of BoC rate decision

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Canadian dollar strengthens 0.1% against the greenback

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Trades in a range of 1.3671 to 1.3734

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Canadian retail sales fall 0.1% in August

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Canadian bond yields ease across the curve

By Fergal Smith

TORONTO, Oct 20 (Reuters) – The Canadian dollar rose against its U.S. counterpart on Friday but the move was modest as stock markets fell and domestic data showed a decline in retail sales, cementing expectations that the Bank of Canada will remain on hold next week.

The loonie was trading 0.1% higher at 1.37 to the greenback, or 72.99 U.S. cents, after moving in a range of 1.3671 to 1.3734.

On Thursday, it touched its weakest intraday level in nearly two weeks at 1.3740. For the week, it was down 0.3%.

Canadian retail sales fell by 0.1% in August from July and look set to stay flat in September, adding to evidence of a slowdown in the domestic economy.

“The market was dabbling with the idea of another Bank of Canada rate hike but that is looking increasingly remote,” said Adam Button, chief currency analyst at ForexLive. “Rising global yields will complicate the Bank of Canada’s job in a big way.”

Money markets see a 12% chance of a rate hike at the Oct. 25 policy decision, down from 43% before data on Wednesday that showed inflation cooling in September.

The U.S. 10-year yield, a global benchmark, climbed on Thursday to a 16-year high near 5%. Canada could be particularly sensitive to higher borrowing costs after households borrowed heavily during the pandemic to participate in a red-hot housing market.

“The Bank of Canada won’t want to fuel worries about the sustainability of home prices … but they’ll be forced to address the burden of mortgage costs that Canadians are dealing with,” Button said.

U.S. stock indexes fell as the Middle East conflict and high long-term borrowing costs weighed on sentiment.

Canadian government bond yields were down across the curve as the move higher in U.S. rates stalled. The 10-year eased 8.4 basis points to 4.090%. (Reporting by Fergal Smith; editing by Diane Craft)