CANADA FX DEBT-C$ firms on unexpectedly wide trade surplus


* Canadian dollar at C$1.0950 or 91.32 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Aug 6 (Reuters) - The Canadian dollar firmed against the greenback on Wednesday, recovering from a three month-low hit in early trade after data showed the country's trade surplus widened unexpectedly in June as exports rose to a record.

The slight gain gave the loonie some relief following a selloff over the last week and a half as optimism over a U.S. economic recovery fueled a preference for the greenback.

Investors were also keeping an eye on geopolitical tensions after NATO said Russia has amassed combat-ready troops on Ukraine's eastern border.

Concerns over a potential escalation in the region took some of the risk appetite out of markets, but the Canadian dollar shrugged that off after a report showed Canada's trade surplus climbed to a two and a half year high in June. The figures surpassed expectations for a flat trade balance.

"Today's number stops us from making that next move higher" in U.S. dollar-Canadian dollar, said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.

"If the Bank of Canada is concerned about the export side, this number gives them a little bit of comfort," he said.

The Bank of Canada wants to see the export sector become a bigger driver of economic growth, taking over for the boom in consumer debt.

The Canadian dollar was at C$1.0950 to the greenback, or 91.32 U.S. cents, stronger than Tuesday's close of C$1.0960, or 91.24 U.S. cents. The loonie earlier hit a session low of C$1.0986, its lowest level since early May.

The Canadian dollar's recent rout has reversed the gains it made in a strong rally through June. The currency is down 2.5 percent since the beginning of July.

The C$1.0920 and C$1.09 areas are levels that investors will focus on as potentially providing a floor for U.S. dollar-Canadian dollar, while C$1.0990 and C$1.10 will be resistance points for the pairing, said Mikolich.

"It does have that feel now that we're inevitably moving higher even though things aren't dramatically different than they were prior to this move," he said.

Investor focus will start to turn to Friday's domestic jobs report as the next key catalyst for the market. Canada's economy is forecast to have added 20,000 jobs in July, bouncing back from an unexpected loss in the previous month.

Canadian government bond prices were higher across the maturity curve, with the two-year up 2-1/2 Canadian cents to yield 1.066 percent and the benchmark 10-year up 32 Canadian cents to yield 2.079 percent.

(Editing by Bernadette Baum)

View Comments (0)