CANADA FX DEBT-C$ slides to March levels on Canada trade deficit, global worries
* Canadian dollar at C$1.2755 or 78.40 U.S. cents * Bond prices higher across the maturity curve By Solarina Ho TORONTO, July 7 (Reuters) - The Canadian dollar tumbled to its weakest level against the greenback since March on Tuesday after data showed Canada posted a bigger-than-expected trade deficit in May. The C$3.34 billion deficit was the second biggest on record and the eighth monthly deficit in a row as exports declined 0.6 percent and imports rose 0.2 percent. The trade numbers were the latest in a string of disappointing data that could push the Bank of Canada to cut interest rates next week to try to stimulate the economy. TD Bank and CIBC are among those already predicting the central bank will cut rates. At 9:39 a.m. EDT (1339 GMT), the Canadian dollar was at C$1.2755 to the greenback, or 78.40 U.S. cents, softer than it was just before the data was released, and sharply weaker than the Bank of Canada's official close of C$1.2652, or 79.04 U.S. cents, on Monday. Before the trade data on Tuesday, the loonie was already weaker due to Monday's big drop in the price of oil, a major Canadian export, and on safe-haven buying of the U.S. dollar amid ongoing euro zone jitters. "The U.S. dollar is pretty strong today in general, so there's a flight to dollar safety," said Avery Shenfeld, chief economist at CIBC World Markets. "We're also still reacting to the huge dive in oil yesterday, so it's not surprising to see the Canadian dollar weaker on a number of fronts, both domestic and global." Crude prices rose on Tuesday after one of the biggest declines of the year on Monday, but appeared vulnerable to another fall after China's stock market took another hit and Greece edged closer to leaving the euro zone. The Canadian dollar, which has retreated more than 2 percent in the past week, traded between $1.2644 and C$1.2763 on Tuesday, its weakest level since March 31. The U.S. trade deficit also widened in May due to a drop in exports, which could fuel worries about overseas demand and a strong greenback. Canadian government bond prices were higher across the maturity curve, with the two-year price up 10 Canadian cents to yield 0.431 percent and the benchmark 10-year rising 145 Canadian cents to yield 1.544 percent. The Canada-U.S. two-year bond spread was -13.8 basis points, while the 10-year spread was -66.6 basis points. (Reporting by Solarina Ho; Editing by Peter Galloway)
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