CANADA FX DEBT-C$ weakens after larger-than-expected trade gap

Thu Feb 6, 2014 9:25am EST

* Canadian dollar at C$1.1114 or 89.77 U.S. cents
    * Bond prices mixed across the maturity curve

    By Leah Schnurr
    TORONTO, Feb 6 (Reuters) - The Canadian dollar weakened
against the greenback on Thursday, erasing earlier gains after
data showed the country posted a much larger-than-expected trade
deficit in December.
    Canada's trade deficit widened to C$1.66 billion ($1.49
billion), almost C$1 billion more than economists had expected,
and the highest level since November 2012. Last November's gap
was also revised to be much larger than originally reported.
 
    Last month's data that showed a similarly
larger-than-expected trade deficit for November, coupled with
data that showed a contraction in purchasing activity, had
sparked a selloff in the loonie in early January that turned out
to be the start of the most recent leg down in the currency. 
    The loonie has regained some ground in recent sessions after
hitting a 4-1/2-year low last week. The currency had been
trading around session highs heading into Thursday's data, but
the disappointing figures sent it lower.
    "This is the next in a string of very disappointing trade
numbers," said David Tulk, chief Canada macro strategist at TD
Securities in Toronto.
    "It still speaks to the narrative that the rotation towards
net exports for the Canadian economy is still quite elusive and
this is despite some hope that the U.S. economy was stronger
through the end of last year."
    The Canadian dollar was at C$1.1114 to the
greenback, or 89.77 U.S. cents, weaker than Wednesday's close of
C$1.1080, or 90.25 U.S. cents.
    Despite the Canadian dollar's tumble in recent months, the
Bank of Canada last month noted the currency was still strong
and still posed an obstacle to exports. 
    "It does validate the Bank of Canada's point that despite a
stronger U.S. economy, that has yet to really flow through into
the Canadian economy. It raises some concern that there's
something more than just the price effect at work," said Tulk.
    Trade data south of the border also showed the U.S. deficit
widened in December, which could see the advance fourth-quarter
growth estimate trimmed. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up half a Canadian
cent to yield 0.976 percent and the benchmark 10-year
 down 10 Canadian cents to yield 2.404 percent.
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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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