Canadian dollar slides as U.S. data spooks investors

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday, pulling back from a one-month high, as investors worried about the Federal Reserve's policy outlook and data showed Canada's trade balance swinging to a deficit.

The loonie was trading 0.7% lower at 1.3565 to the greenback, or 73.72 U.S. cents, after touching its strongest intraday level since Dec. 5 at 1.3467.

Wall Street's main indexes fell and the U.S. dollar rallied against a basket of major currencies as fresh evidence of a tight labor market and hawkish comments from Fed policymakers deepened fears of elevated interest rates for longer than expected.

"This latest round of data confirms the Fed's messaging that more rate hikes are coming," Edward Moya, senior market analyst at OANDA, said in a note.

U.S. and Canadian employment reports, due on Friday, could offer further clues on the outlook for interest rates. Economists expect Canada to add 8,000 jobs in December.

Money markets see a 60% chance that the BoC will hike rates by 25 basis points at its next policy decision on Jan. 25.

Canada posted a trade deficit of C$41 million ($30.2 million) in November after a revised surplus of C$130 million in October, data from Statistics Canada showed.

A decline in energy products contributed to a drop in exports, while imports also fell.

Oil is one of Canada's major exports. It was up 1.6% at $73.98 a barrel after sharp declines over the previous two days.

Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries.

The 10-year rose 3.4 basis points to 3.177% but holding well below the seven-week peak notched last Friday at 3.357%.

(Reporting by Fergal Smith; Editing by Bernadette Baum and Sandra Maler)