CANADA FX DEBT-Canadian dollar dips as risk aversion offsets BoC case against easing further

By Fergal Smith

TORONTO, Feb 5 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday as investors grew risk averse, but the move was limited after Bank of Canada Governor Tiff Macklem pushed back against prospects of additional interest rate cuts to support the economy.

The loonie CAD= was trading 0.1% lower at 1.3675 per U.S. dollar, or 73.13 U.S. cents, after moving in a range of 1.3653 to 1.3699.

The U.S. dollar touched a near two-week high as fresh volatility gripped Wall Street.

Restructuring the Canadian economy to cope with U.S. tariffs, slower population growth and the rise of artificial intelligence will take years, and could be very painful, Macklem said.

"Governor Macklem essentially said his hands were tied in addressing the economic weakness he believes has been caused by the structural change underway," Royce Mendes, head of macro strategy at Desjardins, said in a note. "In his view, cutting interest rates further would only stoke excess inflation, as aggregate demand would bump up against the reduced productive capacity of the economy."

The BoC has lowered its benchmark interest rate to 2.25%, which is the low end of the 2.25%-3.25% range the central bank estimates as neutral, or the level that neither stimulates nor restricts economic activity. Investors are leaning toward the next move being a hike. 0#CADIRPR

The Canadian dollar is expected to give back some recent gains over the coming months, but the currency could then reestablish its uptrend if the BoC shifts to raising rates and the greenback faces broad-based selling pressures, according to a Reuters poll.

Canadian employment data for January, due on Friday, could provide more clues on the monetary policy outlook. Analysts forecast a jobs gain of 5,000.

The price of oil CLc1, one of Canada's major exports, settled 2.8% lower as concerns eased around Iranian crude supplies.

Canadian bond yields moved lower across a flatter curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was down 3.7 basis points at 3.408%.