CANADA FX DEBT-C$ gains on strong trade data and ECB rate cut

Thu Sep 4, 2014 4:33pm EDT

* Canadian dollar at C$1.0874 or 91.96 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, Sept 4 (Reuters) - The Canadian dollar firmed
against the greenback on Thursday after surprisingly strong
trade data and as an interest rate cut from the European Central
Bank prompted investors to look for higher-yielding assets.
    The twin factors had earlier pushed the loonie to its
highest level in nearly a week but the currency cut gains in the
latter part of the session as oil prices dropped.
    Data showed the country's trade surplus jumped in July to a
nearly six-year high as exports rose, an encouraging sign that
the sector could be on its way to recovery. 
    "The trade number was very impressive," said Mark Chandler,
head of Canadian fixed income and currency strategy at Royal
Bank of Canada in Toronto.
    Policymakers are looking for the struggling export sector to
become a bigger driver of Canadian economic growth, taking over
from the boom in household debt.
    Chandler expects the Bank of Canada will have to revise its
growth forecasts higher at its next meeting in October.
    "We've got a full percentage point stronger growth in the
third quarter than the bank was last monitoring, so if we're
correct, it's going to see a revised forecast," he said. 
    "I would like to see them say at that point they have a
tightening bias going forward, talk about an eventual removal of
monetary accommodation, but they've been reluctant to do so in
the past."
    The currency had already been trading higher heading into
the report after the ECB cut its main refinancing rate to 0.05
percent and was further boosted as the central bank launched a
new program to pump money into the euro zone economy.
 
    The Canadian dollar ended the session at C$1.0874
to the greenback, or 91.96 U.S. cents, stronger than Wednesday's
close of C$1.0888, or 91.84 U.S. cents. 
    The Canadian dollar also firmed against its other major
currency crosses, and was strongly higher against the euro.
    Attention was turning to the jobs reports that will be
released on both sides of the border on Friday. In Canada, the
economy is forecast to have added 10,000 jobs in August, but the
report will be more closely scrutinized than usual after July's
figures had to be restated by Statistics Canada due to an error.
    The currency pairing could get back up to the C$1.0950 to
C$1.10 range if the U.S. jobs number comes in above 200,000,
said Ken Wills, currency strategist and broker at CanadianForex
in Toronto.
    Investors could be reluctant to trade aggressively off the
Canadian data, due both to the July error and the month-to-month
volatility the numbers have seen, said Wills.
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 1.5 Canadian
cents to yield 1.128 percent, and the benchmark 10-year
 down 36 Canadian cents to yield 2.126 percent.

 (Editing by Lisa Shumaker)
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