October 31, 2018 / 1:51 PM / a year ago

CANADA FX DEBT-C$ dips as broader gains for greenback offset GDP beat

    * Canadian dollar dips 0.2 percent against greenback
    * Canadian GDP rises 0.1 percent in August
    * U.S. oil prices fall 0.2 percent
    * Canadian bond prices fall across steeper yield curve

    By Fergal Smith
    TORONTO, Oct 31 (Reuters) - The Canadian dollar edged lower
against its U.S. counterpart on Wednesday as the greenback
broadly climbed, offsetting data that showed a surprise
strengthening of the domestic economy in August.    
    The U.S. dollar        climbed to its highest level in 16
months against a basket of currencies as investors bought the
greenback after Treasury yields moved higher.             
    The Canadian economy grew by 0.1 percent in August from July
on gains in the oil and gas extraction sector, as well as
finance and insurance, Statistics Canada said. Analysts had
forecast no change.             
    "If you look through the monthly volatility the economic
backdrop still looks strong," said Nathan Janzen, senior
economist at Royal Bank of Canada.
    On Tuesday, the Bank of Canada reiterated that more interest
rate hikes would be needed to achieve its inflation target and
said now was the ideal time to remove monetary stimulus given
how well the economy was doing.             
    Bank of Canada Governor Stephen Poloz will testify to
senators this afternoon. The central bank will raise interest
rates three times next year, although a firm majority of
economists in a snap Reuters poll said it would hold fire at its
December meeting.             
    Still, Canada's productivity and credit growth face a threat
from a flattening yield curve as it makes it less appealing to
invest in long-term projects, and lesser still if the Bank of
Canada meets its goal of a 3 percent interest rate.             
    At 9:24 a.m. (1324 GMT), the Canadian dollar          was
trading 0.2 percent lower at 1.3134 to the greenback, or 76.14
U.S. cents.
    The currency, which on Friday touched 1.3160, its strongest
level in more than six weeks, traded in a narrow range of 1.3105
to 1.3139.
    The price of oil, one of Canada's major exports, declined
for the third straight day despite the imposition of U.S.
sanctions on Iran next week, and stock markets clawed back some
of their recent losses.             
    U.S. crude        prices were down 0.2 percent at $66.07 a
    Canadian government bond prices were lower across a steeper
yield curve in sympathy with U.S. Treasuries. The two-year
           fell 3 Canadian cents to yield 2.33 percent and the
10-year             declined 23 Canadian cents to yield 2.482
    The 2-year yield touched its highest intraday since Oct. 4
at 2.343 percent.
    Canada's jobs report for September and August trade data are
due on Friday.     

 (Reporting by Fergal Smith
Editing by Susan Thomas)
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