* Ends at C$1.0470 to the US$, or 95.51 U.S. cents
* Inflation figures come in lower than expected
* Tighter credit climate in China hits oil
* Bond prices firm across curve
(Updates to close, adds quote)
By Jennifer Kwan
TORONTO, Jan 20 (Reuters) - Canada's dollar notched its
steepest one-day loss in about three months on Wednesday as
unexpectedly low Canadian inflation figures lessened the
chances of a near-term interest-rate rise and as the U.S.
The currency touched a low of C$1.0490 to the U.S. dollar,
or 95.33 U.S. cents -- down 1.7 percent from Tuesday's close --
to log its steepest slide since late October.
The move lower came as data showed the consumer price index
slipped 0.3 percent in December from November, and that
12-month inflation was 1.3 percent, lower than expected. Core
CPI, closely watched by the central bank, also came in slightly
weaker than expected with a decline of 0.3 percent in the month
for an annual rate of 1.5 percent. [ID:nN20125463]
"The softer number was basically providing further evidence
that the Bank of Canada will keep its conditional commitment
(not to raise rates) to the middle of the year and that the
hikes following that might actual be a slower process than
what's currently priced into the markets," said Matthew
Strauss, senior currency strategist at RBC Capital Markets.
Strauss added some investors were already nervous after the
Bank of Canada signaled on Tuesday it was in no rush to raise
interest rates. [ID:nN19514256]
In a separate report on Wednesday, Canadian manufacturing
sales advanced less than expected in November from October as
weakness in the automotive and aerospace sectors offset gains
in most other industries, Statistics Canada said.
Another factor weighing on the currency was the price of
oil, a key Canadian export, which dropped below $78 a barrel as
the U.S. dollar strengthened and as demand worries grew due to
bank lending curbs in China. [O/R] [.N] [ID:nTOE60J09N]
The Canadian dollar finished at C$1.0470 to the U.S.
dollar, or 95.51 U.S. cents, down from Tuesday's close of
C$1.0307 to the U.S. dollar, or 97.02 U.S. cents.
The greenback got a boost on Wednesday from expectations
that the election of Massachusetts Republican to the U.S.
Senate might might push Washington to rein in spending and cut
the fiscal deficit. [ID:nN18159712]
The euro fell to five-month lows against the dollar on
Wednesday as concerns over Greek debt pushed the currency below
a key support level and triggered widespread selling. [FRX/]
Canadian bond prices were firmer across the curve as the
market interpreted the inflation data as an indicator the Bank
of Canada will stick to its conditional pledge to keep rates on
hold until the end of the second quarter.
"It really cemented the fact that there are really soft
inflation pressures going through the economy," said Ian
Pollick, economics strategist at TD Securities.
The yield on the two-year bond <CA2YT=RR> dipped to 1.217
percent from 1.255 percent just before the inflation data was
Yields on overnight index swaps, which trade based on
expectations for the key rate, edged lower after the data,
showing the market saw tightening as less likely. Still, the
market suggests the Bank of Canada's key rate will be around
0.50 percent in July and 1 percent in December, compared with
the current 0.25 percent. <BOCWATCH>
Pollick added the market is keenly awaiting details from
Thursday's Monetary Policy Report (MPR), the central bank's
quarterly economic projection, and an ensuing press conference
by Governor Mark Carney.
The two-year Canada bond <CA2YT=RR> edged 9 Canadian cents
higher to C$100.07 to yield 1.212 percent, while the 30-year
bond <CA30YT=RR> climbed 41 Canadian cents to C$116.23 to yield
Canadian bonds mostly outperformed U.S. Treasuries. The
Canadian two-year bond <CA2YT=RR> was 33 basis points above the
U.S. two-year yield <CA30YT=RR>, compared with about 38 basis
points below in the previous session.
(Reporting by Jennifer Kwan; editing by Peter Gallow