CANADA FX DEBT-Canadian dollar gains as tariff-threat shock fades

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Canadian dollar gains 0.2% against the greenback

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Trades in a range of 1.4010 to 1.4077

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10-year yield eases 6.5 basis points

By Fergal Smith

TORONTO, Nov 27 (Reuters) - The Canadian dollar extended its recovery from a 4-1/2 year low against its U.S. counterpart on Wednesday as investors bet on Canada avoiding threatened U.S. trade tariffs through negotiation and looked ahead to domestic GDP data.

The loonie was trading 0.2% higher at 1.4025 per U.S. dollar, or 71.30 U.S. cents, after moving in a range of 1.4010 to 1.4077.

On Tuesday, the currency touched its weakest intraday level since April 2020 at 1.4177 after U.S. President-elect Donald Trump said he would impose a 25% tariff on imports from Canada and Mexico.

"Targeting both countries suggests the threat was likely a strategic opening move in renegotiating the existing free trade agreement between the three nations," said Tony Valente, a senior FX dealer at AscendantFX.

"The price action following Trump's remarks support this view, with an initial knee-jerk sell-off giving way to a recovery as investors anticipate a negotiated outcome."

The U.S. dollar fell to a two-week low against a basket of major currencies.

Still, analysts say that oil producers in Canada and Mexico will likely be forced to reduce prices and divert supply to Asia if Trump imposes tariffs on crude imports from the two countries.

Canadian third-quarter gross domestic product data, due on Friday, could offer clues on the pace of further interest rate cuts expected from the Bank of Canada. Economists forecast growth slowing to an annualized rate of 1%.

The gross domestic product report along with recent hotter-than-expected inflation data could push the market to reassess the chances of another outsized interest rate cut next month, Valente said.

The BoC cut its benchmark rate in October by an unusually large half a percentage point to 3.75%.

The Canadian 10-year yield eased 6.5 basis points to 3.221% as investors globally set aside elevated U.S. inflation and worried about the growth outlook. (Reporting by Fergal Smith; Editing by Richard Chang)