CANADA FX DEBT-C$ firms as trade deficit narrows, ECB comments dominate
* Canadian dollar at C$1.3252 or 75.46 U.S. cents * Bond prices mostly higher across the maturity curve TORONTO, Sept 3 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday, supported by a smaller-than-expected trade deficit in July in Canada and comments from the European Central Bank that dominated currency market moves and battered the euro. Canada's export sector posted healthy growth for the second month in a row in July, helping cut the country's trade deficit to an eight-month low of C$593 million, significantly less than the C$1.30 billion economists had forecast. Market participants were hoping the closely watched trade figures would offer a clearer picture on whether the impact of cheap crude has been contained and whether a soft Canadian dollar has helped stimulate other parts of the economy, such as exports. Following the data, markets were pricing in a lower probability the Bank of Canada would cut interest rates by 25 basis points for a third time this year at its next meeting in September. Overseas, the ECB kept its 60 billion euro a month asset purchase limit unchanged, but said the euro zone economy was not recovering at the pace expected. President Mario Draghi said economic conditions had worsened since mid-August. * At 9:32 a.m. EDT (1332 GMT), the Canadian dollar was trading at C$1.3252 to the greenback, or 75.46 U.S. cents, stronger than the Bank of Canada's official close of C$1.3271, or 75.35 U.S. cents. * The loonie traded between C$1.3245 and C$1.3289 so far during the session. * The U.S. trade gap also narrowed in July to $41.9 billion, its lowest level in five months, as exports rose broadly, signaling underlying strength in the economy amid concerns about a global growth slowdown. * U.S. and Canadian employment data for August are due at 08:30 a.m. EDT on Friday. * The Canadian dollar, which was outperforming nearly all of its key currency counterparts, is expected to trade between C$1.3220 and C$1.3320 against the U.S. dollar on Thursday, according to Royal Bank of Canada. * Canadian government bond prices were mostly higher across the maturity curve, with the two-year price up 0.5 Canadian cent to yield 0.413 percent and the benchmark 10-year rising 1 Canadian cent to yield 1.453 percent. * The Canada-U.S. two-year bond spread was -28.3 basis points, while the 10-year spread was -71.9 basis points. (Reporting by Solarina Ho; Editing by Andrea Ricci)
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