CANADA FX DEBT-Canadian dollar edges lower on flight to safety

By Fergal Smith

TORONTO, Feb 26 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday, as safe-haven demand for the greenback offset domestic data that showed a sharp narrowing in Canada's current account deficit.

The loonie CAD= was trading 0.1% lower at 1.3685 per U.S. dollar, or 73.07 U.S. cents, after moving in a range of 1.3660 to 1.3712.

"The AI trade is out of fashion and we're seeing a flight to safety," said Adam Button, chief currency analyst at investingLive. "The U.S. dollar is strong across the board."

The U.S. dollar .DXY notched gains against a basket of major currencies, while Wall Street stocks fell after Nvidia's stellar results failed to enthuse investors and reignited worries over the valuation of stocks tied to artificial intelligence.

Canada's current account deficit narrowed to C$710 million ($519.12 million) in the fourth quarter from a downwardly revised C$5.27 billion deficit in the third quarter, reflecting a reduction in the goods trade deficit, and foreign investors acquired a record C$33.6 billion of federal government bonds, data from Statistics Canada showed.

Economists expect a flat reading for fourth-quarter GDP, due on Friday, which would match the Bank of Canada's projection in January when it left the benchmark interest rate on hold at 2.25%. The central bank has cut rates by 2.75 percentage points since June 2024.

"It's tough to imagine anything jarring the Bank of Canada out of neutral in the next couple of months," Button said. "GDP won't be great but the (rate) cuts are working their way through to the system."

The price of oil CLc1, one of Canada's major exports, edged 0.2% lower to $65.28 a barrel as investors awaited the outcome of a third round of talks between the United States and Iran over the latter's nuclear program.

Canadian government bond yields eased across the curve, tracking moves in U.S. Treasuries. The 10-year CA10YT=RR was down 2.9 basis points at 3.176% after touching its lowest level since December 1 at 3.168%.