CANADA FX DEBT-C$ firms after solid trade data

Fri Mar 4, 2016 10:04am EST
 
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* Canadian dollar at C$1.3390 or 74.68 U.S. cents
    * Bond prices lower across the maturity curve

    By Fergal Smith
    TORONTO, March 4 (Reuters) - The Canadian dollar
strengthened slightly against its U.S. counterpart on Friday
after solid trade data made a Bank of Canada rate cut less
likely, even as a surge in U.S. jobs boosted Federal Reserve
rate hike prospects.
    Canadian exports rose for a third month, including increased
trade with the U.S. that supports hoped for reorientation of
Canada's economy toward the non-resource sector.
    "This is the sort of data they (the Bank of Canada) want to
see," said Andrew Kelvin, senior rates strategist at TD
Securities. "This would make all else equal a rate cut less
likely."
    The implied probability of a rate cut this year was little
changed since before the data, but has fallen to 42 percent from
80 percent last week when Finance Minister Bill Morneau said the
government would stick to plans to stimulate the economy in a
March 22 federal budget.  
    The currency gyrated as the market also digested U.S. data.
    U.S. payrolls surged in February, the clearest sign yet of
labor market strength that could ease fears the economy may be
heading into recession.    
     U.S. crude prices were down 0.14 percent to $34.52 a
barrel as gains this week were slightly pared. 
    At 9:40 a.m. EST (1440 GMT), the Canadian dollar 
was trading at C$1.3390 to the greenback, or 74.68 U.S. cents,
stronger than Thursday's close of C$1.3396, or 74.65 U.S. cents.
    The currency's strongest level of the session was C$1.3390,
while its weakest was C$1.3472. On Thursday, it touched its
strongest since Dec. 7 at C$1.3372.
    Canada posted a smaller-than-expected trade deficit of C$655
million ($489 million) in January from a revised C$631 million
shortfall in December. Exports rose 1 percent, reaching a record
C$46.0 billion, while export volumes surged 3.6 percent.
 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 2
Canadian cents to yield 0.522 percent and the benchmark 10-year
 falling 17 Canadian cents to yield 1.24 percent.
    The Canada-U.S. two-year bond spread was 1.2 basis points
lower at -34.4 basis points, while the 10-year spread was 1.6
basis points lower at -62.4 basis points, as U.S. Treasuries
underperformed.  

 (Editing by Bernadette Baum)