* Canadian dollar at C$1.0736, or 93.14 U.S. cents
* Trade deficit widens in November
* October trade figures revised sharply weaker
* Ivey purchasing data sinks
* Bond yields lower across curve
By Alastair Sharp
TORONTO, Jan 7 The Canadian dollar hit
its weakest level against its U.S. counterpart since 2010 on
Tuesday after Canada posted a surprisingly steep widening of its
trade deficit, eroding market hopes the beleaguered export
sector might be recovering.
The November deficit and a sharp downward revision to
October's trade numbers knocked the wind from a nascent growth
spurt for the Canadian economy, while a sharp contraction in
purchasing activity in an Ivey survey for December added to the
The loonie, as Canada's currency is colloquially known, lost
more than a cent in morning trade in the North American session,
hitting C$1.0763, or 92.91 U.S. cents, for its weakest showing
since May 25, 2010.
"There was some hope late last year that exports showed some
pick-up, especially in September, but with the revision to
October and again the weaker number in November, it showed that
it was probably just one-off strength in September," said
Charles St-Arnaud, Canadian economist and currency strategist at
Nomura Securities International in New York.
"It doesn't provide positive momentum going into this year,"
Shaun Osborne, the chief currency strategist at TD
Securities, said his bank has a yearend target of C$1.11 for the
currency, "but the way this is trading we're going to be there
quite a bit sooner than that".
Nomura's St-Arnaud said there is a 30 percent probability
that the Bank of Canada will cut interest rates in the next six
months if economic growth slows further and inflation remains
below the central bank's target.
The bank has said it has a neutral stance on interest rates,
a shift that came in October after 18 months of signaling rate
hikes were on the horizon.
Overnight index swaps, which trade based on expectations for
the policy rate, are not forecasting a change in rates in the
next 12 months.
But with many traders speculating the central bank is closer
to easing policy than tightening it, any disappointments in
upcoming data, including jobs numbers due on Friday, will likely
hurt the currency more than a positive showing would help it.
"The Canadian dollar is going to be more sensitive to an
asymmetric response to the data from here," Osborne said.
The weak domestic data contrasted with the U.S. trade
deficit hitting its lowest level in four years in November as
exports there hit a record high.
"Today's run of dismal data from Canada has nudged the door
open to a potential rate cut in the months ahead, a dovish
outlook that contrasts with expectations for the Fed to
increasingly pare back on stimulus," Western Union Business
Solutions senior market analyst Joe Manimbo wrote in a note.
The United States is Canada's main trading partner, with
about three-quarters of Canada's exports going to its southern
"We're still not getting that rotation away from
domestically led growth to more trade and investment," TD's
Osborne said of the domestic trade data.
The loonie moved C$1.0719 shortly after the trade data was
released and then spiked as weak as C$1.0763 after the release
of the Ivey data. It last traded at C$1.0736, or 93.14 U.S.
Yields on Canadian government debt were lower across the
maturity curve, with the two-year bond up 2 Canadian
cents to yield 1.122 percent, while the benchmark 10-year bond
rose 9 Canadian cents to yield 2.706 percent.