CANADA FX DEBT-C$ strengthens slightly as exports and oil climb

Wed Oct 5, 2016 9:41am EDT
 
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* Canadian dollar at C$1.3184, or 75.85 U.S. cents
    * Loonie touches weakest intraday in one week at C$1.3219.
    * Bond prices mixed across the yield curve

    By Fergal Smith
    TORONTO, Oct 5 (Reuters) - The Canadian dollar strengthened
slightly against its U.S. counterpart on Wednesday as a rise in
the country's exports reduced the risk of a Bank of Canada rate
cut and oil climbed to a three-month high.
    Canada's trade deficit in August shrank to C$1.94 billion,
its lowest level in eight months, on stronger non-energy
exports. The data offered further evidence the economy rebounded
strongly in the third quarter. 
    "Now that export volumes are up two straight months I think
the Bank of Canada will just sit back anticipating further
increases in exports going forward," said Sal Guatieri, senior
economist at BMO Capital Markets.
    The implied probability of a Bank of Canada rate cut by
mid-2017 dipped to less than 30 percent. It was nearly 50
percent before data on Friday showed the economy grew more than
expected in July.
    U.S. crude prices were up 1.93 percent at $49.63 a
barrel, supported by an industry report that U.S. inventories
probably fell for a fifth straight week and a recent deal by the
Organization of the Petroleum Exporting Countries to cut supply.
    At 9:29 a.m. EDT (1329 GMT), the Canadian dollar 
was trading at C$1.3184 to the greenback, or 75.85 U.S. cents,
slightly stronger than Tuesday's close of C$1.3194, or 75.79
U.S. cents.
    The currency's strongest level of the session was C$1.3173,
while it touched its weakest point since Sept. 28 at C$1.3219. 
    Gains for the loonie were restrained as the prospect of the
European Central Bank eventually winding down its bond-buying
stimulus programme weighed on risk appetite.    
    Canadian government bond prices were mixed across the yield
curve with the two-year flat to yield 0.555 percent
and the benchmark 10-year falling 3 Canadian cents
to yield 1.071 percent.
    The 10-year yield fell 0.9 of a basis point further below
its U.S. equivalent to leave the spread at -62.4 basis points,
its largest gap since March 29.
    Canada's employment report for September is due on Friday.
 

 (Reporting by Fergal Smith; Editing by Bill Trott)