CANADA FX DEBT-Canadian 10-year yield pulls back from 2-year high after tame U.S. inflation data

By Fergal Smith

TORONTO, Aug 12 (Reuters) - Canadian bond yields eased across the curve and the loonie held near a two-month high against the greenback on Wednesday as U.S. inflation data further reduced the odds of an interest rate hike from the Federal Reserve next month.

The 10-year yield CA10YT=RR was down 2.3 basis points at 3.685%, after earlier matching the highest level since May 2024 at 3.755% that it touched on Tuesday.

• Over the past month or so, Canada's 10-year yield has climbed about 17 basis points, the most by far of G7 sovereign debt, as jobs, trade and GDP data pointed to recovery in the domestic economy after a slow start to the year. The 2-year yield was up 16 basis points over the same period.

• "We can look at the relative data performance over the past maybe six weeks," said Robert Both, senior Canadian macro strategist at TD Securities. "That helps Canada underperform the U.S. at the front-end of the curve."

• U.S. consumer prices barely increased in July as the cost of gasoline declined for a second straight month, while underlying inflation was benign.

• Domestic data showed that the value of building permits rebounded 18.5% in June after declining in April and May, led by the non-residential sector.

• The Canadian dollar CAD= was trading 0.1% lower at 1.3940 per U.S. dollar, or 71.74 U.S. cents, after touching its strongest intraday level since June 10 at 1.3909.

• Canada is considering a proposal to accept U.S. auto tariffs in return for a reduction in levies for vehicles compliant with the U.S.-Mexico-Canada Agreement, the Globe and Mail reported, citing people familiar with the matter.

• The price of oil CLc1, one of Canada's major exports, edged 0.1% lower to $83.11 a barrel after forecasters cut projections for 2026 global oil demand, while attacks on ships in the Middle East continued as talks to end the Iran war hit an impasse.

(Reporting by Fergal Smith; Editing by Aurora Ellis)

((fergal.smith@thomsonreuters.com; +1 647 480 7446))