Canadian dollar strengthens slightly as exports and oil climb

TORONTO (Reuters) - The Canadian dollar strengthened slightly against its U.S. counterpart on Wednesday as oil climbed to a three-month high and domestic data showed a rise in exports.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

Canada’s trade deficit in August shrank to C$1.94 billion, its lowest in eight months, on stronger non-energy exports. The data offered further evidence the economy rebounded strongly in the third quarter.

U.S. crude oil prices CLc1 settled up $1.14 at $49.83 a barrel, reaching their highest since June after the fifth unexpected weekly drawdown in U.S. crude inventories added to support on hopes that major producers will agree to cut output next month.

The Canadian dollar benefited from higher oil prices and some reduced pressure on the Bank of Canada to cut interest rates, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

The implied probability of a Bank of Canada rate cut by mid-2017 dipped to less than 25 percent. It was nearly 50 percent before data on Friday showed the economy grew more than expected in July.

The Canadian dollar CAD=D4 ended at C$1.3182 to the greenback, or 75.86 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$1.3161, while it touched its weakest point since Sept. 28 at C$1.3232.

Gains for the loonie were restrained as investors braced for U.S. and Canadian employment data at the end of the week. ECONCA

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries as U.S. services industries grew at their fastest pace in 11 months in September.

The two-year CA2YT=RR fell 4 Canadian cents to yield 0.577 percent and the benchmark 10-year CA10YT=RR declined 22 Canadian cents to yield 1.091 percent.

The 10-year yield touched its highest intraday in nearly two weeks at 1.141 percent.

Reporting by Fergal Smith; Editing by Bill Trott and James Dalgleish