CANADA FX DEBT-C$ weakens as Bank of Canada tone is taken as dovish
* Canadian dollar at C$1.0939 or 91.42 U.S. cents * Bond prices mixed across the maturity curve (Adds details, quotes, updates prices) By Leah Schnurr TORONTO, June 4 (Reuters) - The Canadian dollar weakened against the greenback on Wednesday after the Bank of Canada said the risks of low inflation remain as large as ever despite a recent pick up in prices, striking a tone that was more dovish than some in the market had hoped for. The loonie had weakened heading into the central bank's policy statement in the morning, hit by data that showed an unexpected trade deficit in April. After two months of surplus, Canada posted a trade gap of C$638 million ($585 million), while March was revised up to a surplus of C$766 million. The market's main focus for the day was on the Bank of Canada, which held its overnight interest rate at 1 percent, as expected. But the central bank also pointed to weaker-than-expected global growth and attributed April's rise in inflation to largely temporary effects. The Canadian dollar touched a session low of C$1.0956 shortly after the statement, briefly taking the currency to a nearly one-month low. "I believe the overall tone was dovish. They discarded the recent inflationary signs, although they did comment that it popped up a bit quicker than they had expected," said Ken Wills, currency strategist and broker at CanadianForex in Toronto. The increase in the overall inflation rate to the bank's 2 percent target in April had raised some expectations that the Bank of Canada could back off the dovish tilt it has to its neutral stance. But last week's disappointing economic growth data for the first quarter "left the door open for Governor (Stephen) Poloz to keep his dovish tone as is," said Wills. The Canadian dollar ended the North American session at C$1.0939 to the greenback, or 91.42 U.S. cents, weaker than Tuesday's close of C$1.0910, or 91.66 U.S. cents. The loonie might have weakened further if it were not for the market's attention turning to Friday's Canadian labor market report, said Wills. Economists are forecasting the economy added 25,000 jobs last month, after unexpectedly shedding jobs in April. "They're expecting a big correction on that, it could give the loonie some footing," said Wills. "I think if we didn't have that so close, we easily could have been comfortably through C$1.0950 and approaching C$1.0980 today." Canadian government bond prices were mixed across the maturity curve, with the two-year up 2 Canadian cents to yield 1.064 percent, while the benchmark 10-year was down 10 Canadian cents to yield 2.353 percent. (Editing by Steve Orlofsky)
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