April 4, 2017 / 1:43 PM / in 3 years

CANADA FX DEBT-C$ hits nearly 3-week low after surprise trade deficit

    * Canadian dollar at C$1.3451, or 74.34 U.S. cents
    * Loonie touches its weakest since March 15 at C$1.3455
    * Bond prices slightly higher across the yield curve
    * 10-year yield touches a four-month low at 1.545 percent

    By Fergal Smith
    TORONTO, April 4 (Reuters) - The Canadian dollar weakened on
Tuesday to a nearly three-week low against its U.S. counterpart,
pressured by a loss of risk appetite and domestic data showing
an unexpected trade deficit.
    Following three consecutive months of surpluses, February's
C$972 million deficit compared with economists' expectations for
a surplus of C$500 million. Exports tumbled by the most in
nearly a year, dampened by a decrease in shipments of aircraft
and canola.             
    The drop in exports will embolden the Bank of Canada to not
put too much weight on a recent strong run of domestic data when
it makes its interest rate decision next week, said Nick
Exarhos, economist at CIBC Capital Markets.
    "They are likely to continue to highlight that we are
starting from a position of economic slack.
    Risk aversion helped support the yen at the expense of
commodity-linked currencies, such as the Canadian dollar, that
tend to underperform when investors turn less optimistic about
the economic outlook.              
     Appetite for risk has been curtailed by market nerves ahead
of a meeting between U.S. President Donald Trump and Chinese
President Xi Jinping and following Monday's suspected suicide
bombing in St. Petersburg, Russia.
    At 9:21 a.m. ET (1321 GMT), the Canadian dollar          was
trading at C$1.3451 to the greenback, or 74.34 U.S. cents,
weaker than Monday's close of C$1.3386, or 74.70 U.S. cents.
    The currency's strongest level of the session was C$1.3374,
while it touched its weakest since March 15 at C$1.3455.
    Losses for the Canadian dollar came even as prices of oil,
one of Canada's major exports, rose.
    U.S. crude        prices were up 0.58 percent at $50.53 a
barrel as a rebound in Libyan crude production balanced
expectations of a draw in U.S. crude oil and product
    On Monday, dealers speculated that there had been mergers
and acquisitions-related buying of U.S. dollars against the
    Last week, ConocoPhillips         agreed to sell oil sands
and western Canadian natural gas assets to Calgary-based Cenovus
Energy Inc          for C$17.7 billion.
    Canadian government bond prices were slightly higher across
the yield curve, with the two-year            up 1 Canadian cent
to yield 0.721 percent and the 10-year             rising 13
Canadian cents to yield 1.552 percent.
    The 10-year yield touched its lowest intraday since Nov. 30
at 1.545 percent.

 (Reporting by Fergal Smith; Editing by Nick Zieminski)
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