CANADA FX DEBT-Canadian dollar rebounds as US data reinforces Fed rate-cut case

By Fergal Smith

TORONTO, Sept 11 (Reuters) - The Canadian dollar recovered from a near three-week low against its U.S. counterpart on Thursday as investors focused on further signs of a slowing U.S. labor market and Canada took steps to diversify its economy.

The loonie CAD= was trading 0.2% higher at 1.3830 per U.S. dollar, or 72.31 U.S. cents, after earlier touching its weakest level since August 22 at 1.3890.

U.S. consumer prices increased by the most in seven months in August amid higher costs for housing and food, but a surge in first-time applications for unemployment aid last week kept the Federal Reserve on track to cut interest rates next Wednesday.

"Today’s positive price action in CAD was driven by U.S. data, as inflation broadly met expectations while higher jobless claims reinforced the case for a Fed rate cut next week," said Tony Valente, senior FX dealer at AscendantFX.

"While the Canadian economy still faces headwinds, monetary policy appears to be converging as the Fed restarts its easing cycle just as the Bank of Canada nears the end of its own."

Investors expect just two more cuts from the BoC in the current easing campaign, including one at a policy announcement next Wednesday. 0#CADIRPR The central bank has already lowered its benchmark rate to 2.75%, the middle of its so-called neutral range.

Canada named five major projects, including a plan to increase production of liquefied natural gas, it said would be eligible for fast-track approvals as part of a campaign to diversify the economy and reduce reliance on the United States.

One of Canada's major exports is oil CLc1. It was down 1.9% at $62.47 a barrel, pressured by concerns over softening U.S. demand.

Canadian bond yields eased across much of a flatter curve. The 10-year CA10YT=RR was down 1.3 basis points at 3.163%, after earlier touching its lowest level since May 16 at 3.133%.