CANADA FX DEBT-Canadian dollar slides as Trump scraps trade talks with Canada

By Fergal Smith

TORONTO, June 27 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday as the outlook for a trade deal between Canada and the United States grew suddenly more uncertain and after data earlier in the day showed a contraction in the domestic economy.

U.S. President Donald Trump said in a post on Truth Social that the U.S. is immediately ending trade talks with Canada in response to the country's digital services tax on technology companies. Canada sends about 75% of its exports to the U.S.

"We've been kind of weak all morning after the weaker GDP print, lower oil prices, the U.S. dollar bouncing," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.

"This Trump post about terminating all discussions with Canada has seen the floor fallout from underneath the Canadian dollar."

The loonie CAD= was trading 0.6% lower at 1.3720 per U.S. dollar, or 72.89 U.S. cents, after touching its weakest intraday level since Monday at 1.3758. For the week, the currency was up 0.1%.

Canada's gross domestic product fell 0.1% in April from March, led by a 0.6% decline in goods-producing industries as U.S. tariff uncertainty spurred some motor vehicle manufacturers to scale back production. A preliminary estimate showed a further decline of 0.1% in May.

"We suspect that the underlying softness in growth and employment will eventually pave the way for additional (interest) rate relief," Doug Porter, chief economist at BMO Capital Markets, said in a note.

Investors see a roughly 60% chance the Bank of Canada leaves its benchmark interest rate on hold at 2.75% at a policy decision on July 30 but are leaning toward a cut in September. 0#CADIRPR

The U.S. dollar .DXY clawed back some recent declines against a basket of major currencies, while the price of oil posted a steep weekly decline.

Canadian bond yields moved lower across a flatter curve. The 10-year CA10YT=RR was down 2.9 basis points at 3.311%, pulling back from an earlier one-week high at 3.377%.