CANADA FX DEBT-C$ extends gains as oil offsets trade deficit hit

Tue Oct 6, 2015 5:41pm EDT
 
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(Adds closing figures, strategist comment, details)
    * Canadian dollar ends at C$1.3027 or 76.76 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Oct 6 (Reuters) - The Canadian dollar rallied
against the greenback for the fifth-straight session on Tuesday,
bolstered by a surge in crude oil  prices that offset earlier
losses on data that showed Canada's trade deficit widened in
August as exports slumped.
    The price of crude, a significant Canadian export, surged on
technical buying, a U.S. government forecast for tighter oil
supplies next year and signs that the world's biggest crude
producers may act jointly to support prices. 
    U.S. crude settled at $48.53 a barrel, up $2.27, or 4.9
percent. 
    "The driver today clearly has been oil. If you look at the
trade data ... they weren't really that glorious," Amo Sahota,
director at Klarity FX in San Francisco, said, adding that the
soft data would not alter Bank of Canada interest rate
expectations.
    "Expectations of a rate cut keep on diminishing to the point
where it's negligible."
    Data showed exports fell by 3.6 percent, the largest decline
since January 2012, as exports of energy products sank 14.7
percent. The slump, which follows two months of robust growth,
pushed the country's trade deficit to C$2.53 billion, far off
the C$1.2 billion economists had forecast. 
    The loonie began recouping initial losses as market
participants digested the details. Economists and analysts noted
that the longer-term trends, particularly in terms of volume - a
key measure for the Bank of Canada, remained "constructive."
    The Canadian dollar ended the session at C$1.3027
to the U.S. dollar, or 76.76 U.S. cents, stronger than the Bank
of Canada's official close of C$1.3087, or 76.41 U.S. cents on
Monday.
    The currency, which was weaker than most of its
counterparts, traded between C$1.3026 and C$1.3134 during the
session. It has rallied nearly 3 percent since softening to
11-year lows a week ago.
    In other data, the pace of purchasing activity in Canada
slowed in September as a decline in the measure of prices offset
gains in employment and inventories, according to Ivey
Purchasing Managers Index data. 
    The U.S. trade deficit for August also widened as exports
took a hit, hurt by a softening global economy, news that could
fuel expectations the Federal Reserve will push back any rate
hike. 
    Canadian government bond prices were mostly higher across
the maturity curve. The two-year was flat to yield
0.508 percent, while the benchmark 10-year rose 21
Canadian cents to yield 1.421 percent.
   

 (Reporting by Solarina Ho Editing by W Simon and Dan Grebler)