UPDATE 1-Bank of Canada sees lower potential risk from global trade disputes

Tessa Vikander

(Adds details from Poloz event, analyst reaction, background)

VANCOUVER, Jan 9 (Reuters) - The potential downside risks from global trade friction seem to have eased as the United States and China near a deal, although much uncertainty remains around implications of any such pact for Canada, Bank of Canada Governor Stephen Poloz said on Thursday.

"Certainly, it seems that the potential downside risks have eased as the United States and China approach a deal. This all bears watching during the coming year," he told a business audience in Vancouver in his first public address of the year.

Poloz also said there was still plenty of uncertainty about what a U.S.-China deal could mean for Canadian exports and whether any more of the new tariffs the superpowers have imposed on each other could be rolled back.

The central bank has repeatedly expressed concern that Canada, with its economy heavily reliant on exports, is vulnerable to protectionist actions.

"On the surface, there has been some improvement on this front lately, although it remains to be seen whether this will lead to a recovery of trade and investment," Poloz said, noting companies are understandably reluctant to make big investments.

On a more cautious note, Poloz said the bank will be watching the data to see if a recent slowdown in job creation persists.

Data last month showed that the economy shed more than 70,000 positions in November. The December employment report is due on Friday.

"The Bank seems to be reserving judgment on two fronts, in terms of whether the trade situation will actually be improving, and on the less optimistic side, whether the recent softness in employment data represents a new trend," CIBC Chief Economist Avery Shenfeld wrote in a note.

The Bank of Canada has held its overnight interest rate steady since October 2018 even as several of its counterparts, including the U.S. Federal Reserve, have eased.

The Canadian central bank's next rate decision is scheduled for Jan. 22 and market expectations, as reflected in the overnight index swaps markets, show it is expected to stay put. (Additional reporting by Fergal Smith in Toronto, writing by Kelsey Johnson and David Ljunggren in Ottawa)