March 7, 2018 / 5:40 PM / 2 years ago

CANADA FX DEBT-C$ slides as BoC worries about trade developments

 (Adds strategist quotes, details on market activity, updates
    * Canadian dollar at C$1.2990, or 76.98 U.S. cents
    * Loonie matches Monday's low as weakest in 8 months
    * Bond prices higher across the yield curve
    * Bank of Canada leaves benchmark rate at 1.25 percent

    By Fergal Smith
    TORONTO, March 7 (Reuters) - The Canadian dollar weakened
against the greenback on Wednesday as expectations fell for
further Bank of Canada interest rate hikes over the coming
months after the central bank worried about trade policy
    The Bank of Canada said that trade policy is an "important
and growing source of uncertainty for the global and Canadian
outlooks," as it left its benchmark interest rate unchanged at
1.25 percent.             
    Canada sends 75 percent of its exports to the United States.
Its economy could be hurt by an uncertain outlook for the North
American Free Trade Agreement and planned U.S. tariffs on steel
and aluminum.
    The resignation of top U.S. economic adviser Gary Cohn could
give free trade skeptics the upper hand in the White House.
    "The real big issue is you still probably have another rate
hike you have to price out for this year," said Mark McCormick,
North American head of FX Strategy at TD Securities. "It has
been our view for the last month or so that two more hikes
priced in this year is pretty aggressive.
    The Bank of Canada has raised its benchmark interest rate
three times since July. The amount of further tightening
anticipated this year by money markets slipped to 44 bps from 50
basis points on Tuesday.                    
    Canada's trade deficit narrowed more than expected to C$1.91
billion in January as imports pulled back from a record high,
but exports tumbled by the most in six months, data from
Statistics Canada showed.             
    The price of oil, one of Canada's major exports, fell after
U.S. government data showed an increase in inventories and as
financial markets slid. U.S. crude        prices were down 2.8
percent at $60.84 a barrel.                 
    At 12:21 p.m. EST (1721 GMT), the Canadian dollar         
was trading 0.9 percent lower at C$1.2990 to the greenback, or
76.98 U.S. cents.
    The currency matched Monday's low at C$1.3002, which was its
weakest since July 5.
    Still, the Canadian dollar is forecast to rally over the
coming year, a Reuters poll showed, as global economic strength
and a broadly weaker greenback offsets investor fears of a trade
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries on safe-haven buying as
stocks fell.
    The two-year            rose 4.5 Canadian cents to yield
1.752 percent and the 10-year             climbed 25 Canadian
cents to yield 2.201 percent.
    Canada's employment report for February is due on Friday.  

 (Reporting by Fergal Smith
Editing by Nick Zieminski and Susan Thomas)
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