The Canadian dollar weakened to a five-week low against its U.S. counterpart on Thursday after domestic data showing a drop in exports for the third straight month further weakened prospects of another interest rate hike this year from the Bank of Canada.
Canada’s trade deficit widened in August to $3.41-billion from a revised $2.98-billion shortfall in July, as exports fell for a third consecutive month, Statistics Canada said.
“This is another disappointing trade report,” said Ryan Brecht, a senior economist at Action Economics.
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It suggests the Bank of Canada will not change rates this month and reduces the chances of a rate hike in December, Brecht said.
The central bank has raised rates twice since July. But the chances of another hike this year dropped to 60 per cent from 66 per cent before the data, the overnight index swaps market indicated. They were nearly 100 per cent before Governor Stephen Poloz signalled last week that a third hike was not imminent.
At 9:19 a.m. ET (1319 GMT), the Canadian dollar was trading at $1.2542 to the greenback, or 79.73 U.S. cents, down 0.5 per cent.
The currency’s strongest level of the session was $1.2463, while it touched its weakest since Aug. 31 at $1.2546.
The price of oil, one of Canada’s major exports, steadied on expectations that Saudi Arabia and Russia would extend production cuts.
U.S. crude prices were up 0.24 per cent at $50.10 a barrel.
Canadian government bond prices were higher across the yield curve, with the two-year up 2.5 Canadian cents to yield 1.52 per cent and the 10-year rising 15 Canadian cents to yield 2.103 per cent.
The gap between Canada’s two-year yield and its U.S. equivalent narrowed by 1.4 basis points to a spread of 3.7 basis points.
Canada’s September employment report is due on Friday.
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