August 30, 2018 / 7:07 PM / 24 days ago

CANADA FX DEBT-C$ slides as September rate hike prospects fade on GDP miss

 (New throughout, updates prices and market activity, adds
strategist quotes and details)
    * GDP rose 2.9 pct in Q2, growth stalled in June
    * Traders see little chance BOC hiking rates next week
    * Price of U.S. oil rises 1.1 percent
    * Canadian bond prices rise, yield curve flattens

    By Fergal Smith
    Aug 30 (Reuters) - The Canadian dollar fell versus the
greenback on Thursday as data showed the domestic economy grew
at a slower pace in the second quarter than forecast, supporting
traders' view the Bank of Canada will leave interest rates on
hold next week.
    Canada's economy grew at a 2.9 percent annualized rate in
the second quarter, the fastest in a year but a tad slower than
the 3.0 percent pace seen among analysts polled by Reuters. GDP
was unchanged in June, compared with an expected 0.1 percent
increase, Statistics Canada said.                 
    "Canada's Q2 GDP has missed the mark marginally,
disappointing investors," said Stephen Innes, head of trading in
Asia with Oanda in Singapore.
    Chances of another interest rate hike from the Bank of
Canada as soon as an announcement on Sept. 5 fell to 16 percent
from more than 20 percent before the data, the overnight index
swaps market showed.               
    The loonie has been boosted this week by investor optimism
that a bilateral deal to revamp the North American Free Trade
Agreement will be reached before a Friday deadline. Still, work
remains on specific issues.             
    "We don't see a deal being struck (this week)," said Andrew
Sierocinski, a foreign exchange analyst at Klarity FX. "We think
this loonie weakness is justified."
    Canada sends about 75 percent of its exports to the United
States, so its economy could be hurt if a deal is not reached.
    At 2:52 p.m. (1852 GMT), the Canadian dollar          was
trading 0.6 percent lower at C$1.2993 to the greenback, or 76.96
U.S. cents. The currency traded in a range of C$1.2904 to
C$1.3000.
    The decline for the loonie came as a Canadian court
overturned approval of the Trans Mountain oil pipeline expansion
in a blow to Prime Minister Justin Trudeau's efforts to balance
environmental and economic issues.             
    The price of oil, one of Canada's major exports, was boosted
by growing evidence of disruptions to crude supply from Iran and
Venezuela and after a fall in U.S. crude inventories. U.S. crude
oil futures        settled 1.1 percent higher at $70.25 a
barrel.
    Canadian government bond prices were higher across a flatter
yield curve, with the 10-year             rising 38 Canadian
cents to yield 2.277 percent.
    The gap between Canada's 10-year yield and its U.S.
equivalent widened 2.8 basis points to a spread of 58.9 basis
points in favor of the U.S. bond.

 (Additional reporting by Richard Leong; Editing by Steve
Orlofsky and David Gregorio)
  
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