CANADA FX DEBT-C$ hits one-week low as BoC frets about trade

 (Adds strategist quotes, details throughout; updates prices)
    * Canadian dollar at C$1.2635, or 79.15 U.S. cents
    * Loonie touches weakest since April 10 at C$1.2660
    * Bond prices mixed across steeper yield curve

    By Fergal Smith
    TORONTO, April 18 (Reuters) - The Canadian dollar weakened
to a one-week low against its U.S. counterpart on Wednesday,
pressured by a more dovish message on trade than some investors
had expected from the Bank of Canada.
    The Bank of Canada flagged more interest rate hikes would be
coming after it held its benchmark rate steady at 1.25 percent,
but said it did not know when or how aggressive it would need to
be to keep inflation in check.             
    The central bank is signaling "a desire to maintain a bit
more accommodation than would be justified by fundamentals,"
said Eric Theoret, a currency strategist at Scotiabank. "A lot
of it seems to me to be driven by the trade piece."
    The central bank worried about more protectionist global
trade policies despite recent indications that prospects have
improved for a deal to revamp the North American Free Trade
    "It seems at odds with what we have seen on the NAFTA
front," Theoret said.
    Chances of a hike at the next interest rate decision in May
slipped further below 40 percent, the overnight index swaps
market indicated.           
    At 2:20 p.m. EDT (1820 GMT), the Canadian dollar         
was trading 0.7 percent lower at C$1.2635 to the greenback, or
79.15 U.S. cents.
    The currency's strongest level of the session was C$1.2548,
while it hit its weakest since April 10 at C$1.2660. On Tuesday,
the loonie touched its strongest in nearly two months at       
    The Canadian dollar is on course to strengthen in April for
the eighth time in the last 10 years, a sequence strategists
link to seasonal vitality in stocks and energy products,
rewarding investors who trade on market patterns.             
    The price of oil, one of Canada's major exports, was lifted
by a decline in U.S. crude inventories and after sources
signaled top exporter Saudi Arabia wants to see the crude price
closer to $100 a barrel.             
    U.S. crude        prices were up 2.5 percent at $68.15 a
barrel, while stocks on Wall Street were supported by strong
results from some marquee industrial companies.             
    Canadian government bond prices were mixed across a steeper
yield curve, with the two-year            up 1.5 Canadian cents
to yield 1.876 percent and the 10-year             falling 13
Canadian cents to yield 2.263 percent.
    The 2-year yield reached its highest intraday level since
June 2011 at 1.920 percent, before the Bank of Canada

 (Reporting by Fergal Smith; Editing by Dan Grebler)