October 5, 2017 / 9:15 PM / 3 years ago

CANADA FX DEBT-C$ slides to 5-week low as rate hike odds dwindle on trade data

 (Adds analyst comments, updates figures, oil prices)
    * Canadian dollar at C$1.2571, or 79.5 U.S. cents
    * Loonie touches its weakest since Aug. 31 at C$1.2546
    * Canada's trade deficit widens in August to C$3.41 billion
    * Bond prices higher across the yield curve

    By Solarina Ho
    TORONTO, Oct 5 (Reuters) - The Canadian dollar retreated to
a five-week low against the U.S. dollar on Thursday after
domestic data showing a drop in exports for the third straight
month further weakened prospects the Bank of Canada would
increase interest rates again this year.
    Canada's trade deficit widened in August to C$3.41 billion
from a revised C$2.98 billion shortfall in July, as exports fell
for a third consecutive month, Statistics Canada said.
    "Canadian trade in August was very weak, there's no glossing
over it," said Adam Button, currency analyst at ForexLive.
    "The Canadian dollar fell more than usual because the market
sees soft trade in August as a sign that Canadian exporters are
struggling due to the strong loonie. The market is extrapolating
soft trade going forward."
    At 4:00 p.m. ET (2000 GMT), the Canadian dollar          was
trading at C$1.2571 to the greenback, or 79.55 U.S. cents, down
0.8 percent.
    The currency's strongest level of the session was C$1.2463,
while it touched its weakest since Aug. 31 at C$1.2585.
    Button said the market is also nervous about domestic 
employment data for September due on Friday. "The market has
lost faith in an October rate hike, and a weak job report would
be the nail in the coffin," he added.
    The central bank has raised rates twice since July. But the
chances of another hike this year dropped to 60 percent from 66
percent before the data, the overnight index swaps market
indicated. They were nearly 100 percent before Governor Stephen
Poloz signaled last week that a third hike was not imminent.
    The Canadian dollar's one-cent slide came even as the price
of oil, a major Canadian export, rallied some 2 percent on
expectations that Saudi Arabia and Russia would extend
production cuts.             
    U.S. crude        futures settled at $50.79 a barrel, up
1.62 percent.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 2 Canadian cents to yield
1.523 percent and the 10-year             rising 15 Canadian
cents to yield 2.103 percent.
    The gap between Canada's two-year yield and its U.S.
equivalent narrowed by 1.9 basis points to a spread of 3.2 basis

 (Reporting by Fergal Smith and Solarina Ho; Editing by Bill
Trott and Diane Craft)
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