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CANADA FX DEBT-C$ strengthens as trade data adds to economic recovery hopes

    * Canadian dollar gains 0.2% against the greenback
    * Canada's trade deficit narrows to C$677 million in May 
    * Price of U.S. oil increases 1.7%
    * Canadian bond yields rise across a steeper curve

    By Fergal Smith
    TORONTO, July 2 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Thursday as domestic data
showing a narrower-than-expected trade deficit supported hopes
of economic recovery, with the loonie moving in reach of a
one-week high it notched the previous day.
    Canada posted a trade deficit of C$677 million in May as
exports jumped 6.7%, data from Statistics Canada showed.
Analysts had forecast a deficit of C$3 billion.             
    "This report is consistent with the V-shaped recovery story,
as activity picked up in May after the economy bottomed in
April," said Ryan Brecht, a senior economist at Action
Economics.
    In a V-shaped recovery, activity rebounds quickly after a
sharp decline.
    "Yet uncertainty remains elevated, with the resurgence in
virus cases and pause in reopenings prompting worries that the
recovery stalled in late June," Brecht said.
    Several U.S. states, along with some other parts of the
world, are reversing or pausing reopenings to tackle a recent
surge in infections.
    The loonie        was trading 0.2% higher at 1.3563 to the
greenback, or 73.73 U.S. cents. The currency, which on Wednesday
touched its strongest intraday level since June 24 at 1.3541,
traded in a range of 1.3563 to 1.3611.
    The Canadian dollar is likely to gain over the coming year
if a potential economic recovery from the coronavirus crisis
boosts stocks and the price of oil, assets closely tracked by
the currency, toward pre-pandemic levels, a Reuters poll showed.
            
    Global shares         were boosted on Thursday by signs of
progress on developing a COVID-19 vaccine and as data showed a
record U.S. jobs gain, while U.S. crude        prices were up
1.7% at $40.50 a barrel.                             
    Canadian government bond yields rose across a steeper curve
as the market reopened following the Canada Day holiday on
Wednesday. The 10-year yield             climbed 5.8 basis
points to 0.585%.    

 (Reporting by Fergal Smith; editing by Jonathan Oatis)
  
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