Canadian dollar dips ahead of rate decision as data shows weaker exports

TORONTO (Reuters) - The Canadian dollar edged lower on Wednesday against its U.S. counterpart as domestic trade data showed a drop in exports, while investors awaited an interest rate decision later in the morning from the Bank of Canada.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch/File Photo GLOBAL BUSINESS WEEK AHEAD SEARCH GLOBAL BUSINESS 17 JULY FOR ALL IMAGES - RC1174FD3270

Canada’s trade deficit shrank to C$3.04 billion in July from C$3.76 billion in June, Statistics Canada said. In volume terms, imports fell by 2.3 percent while exports dropped by 1.1 percent.

“It is possibly seeing some impact from the stronger (Canadian) dollar weighing on export growth,” said Paul Ferley, assistant chief economist at Royal Bank of Canada. “Exports had been one area that the Bank (of Canada) had been looking for to provide support to growth.”

The central bank, in its decision due to be announced at 10 a.m. (1400 GMT), will likely leave rates unchanged, a Reuters poll released on Friday showed. The bank will probably wait until October to raise them, according to the survey.

Still, the chances of a hike this week have climbed to nearly 40 percent, the overnight index swaps market has indicated, from around 20 percent before data on Thursday showing Canada’s economy expanded in the second quarter at its fastest pace in nearly six years.

The central bank raised rates in July for the first time in nearly seven years. Its policy rate stands at 0.75 percent.

At 9:14 a.m. ET (1314 GMT), the Canadian dollar CAD=D4 was trading at C$1.2400 to the greenback, or 80.65 U.S. cents, down 0.2 percent.

The currency traded in a range of C$1.2365 to C$1.2407. It touched on Tuesday its strongest since June 2015 at C$1.2336.

Prices of oil, one of Canada’s major exports, rose as strong global refining margins and the reopening of U.S. Gulf Coast refineries provided a more bullish outlook after sharp drops due to Storm Harvey.

U.S. crude CLc1 prices were up 1.23 percent at $49.26 a barrel.

Canadian government bond prices were mixed across a steeper yield curve, with the two-year CA2YT=RR price up 0.5 Canadian cent to yield 1.347 percent and the 10-year CA10YT=RR falling 14.5 Canadian cents to yield 1.877 percent.

The August employment report is awaited on Friday. ECONCA

Reporting by Fergal Smith; Editing by Chizu Nomiyama