TORONTO: The Canadian dollar strengthened slightly against its US counterpart on Wednesday as a rise in the country's exports reduced the risk of a Bank of Canada rate cut and oil climbed to a three-month high.
Canada's trade deficit in August shrank to C$1.94 billion, its lowest level in eight months, on stronger non-energy exports. The data offered further evidence the economy rebounded strongly in the third quarter.
"Now that export volumes are up two straight months I think the Bank of Canada will just sit back anticipating further increases in exports going forward," said Sal Guatieri, senior economist at BMO Capital Markets.
The implied probability of a Bank of Canada rate cut by mid-2017 dipped to less than 30 percent. It was nearly 50 percent before data on Friday showed the economy grew more than expected in July.
US crude prices were up 1.93 percent at $49.63 a barrel, supported by an industry report that US inventories probably fell for a fifth straight week and a recent deal by the Organization of the Petroleum Exporting Countries to cut supply.
At 9:29 a.m. EDT (1329 GMT), the Canadian dollar was trading at C$1.3184 to the greenback, or 75.85 US cents, slightly stronger than Tuesday's close of C$1.3194, or 75.79 US cents.
The currency's strongest level of the session was C$1.3173, while it touched its weakest point since Sept. 28 at C$1.3219.
Gains for the loonie were restrained as the prospect of the European Central Bank eventually winding down its bond-buying stimulus programme weighed on risk appetite.
Canadian government bond prices were mixed across the yield curve with the two-year flat to yield 0.555 percent and the benchmark 10-year falling 3 Canadian cents to yield 1.071 percent.
The 10-year yield fell 0.9 of a basis point further below its US equivalent to leave the spread at -62.4 basis points, its largest gap since March 29.
Canada's employment report for September is due on Friday.
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