CANADA FX DEBT-Canadian dollar consolidates after weak GDP

Tue May 1, 2012 8:28am EDT

* C$ steady at C$0.9869 vs US$, or $1.0133
    * Bond prices climb across curve

    By Claire Sibonney	
    TORONTO, May 1 (Reuters) - The Canadian dollar held steady
against its U.S. counterpart on Tuesday after stumbling in the
previous session on data that showed the domestic economy
unexpectedly shrank in February.	
    Stable oil prices were also somewhat supportive of the
currency as economic expansion in China helped counter a
sluggish U.S. economy and bubbling euro zone debt crisis that
may depress demand for fuel. 	
    The Canadian dollar outperformed other commodity-linked
currencies after the Reserve Bank of Australia caught markets
off guard by cutting its official interest rates by an
aggressive half point. 	
    "The main focus on overnight was the RBA's surprise 50-basis
point cut so the Aussie and the Kiwi seem to be the main movers
against the G10," said Matt Perrier, a director of foreign
exchange sales at BMO Capital Markets.	
    Data on Monday showed Canada's gross domestic product
dropped by 0.2 percent in February from January, surprising
analysts who had expected a 0.2 percent increase and dampening
speculation the Bank of Canada was preparing to shift to a
tighter monetary policy.  	
    "Interest rate hikes are still being priced into the market
although the aggressiveness with which the timing had been
brought forward by the market seemed to have abated somewhat
after yesterday's numbers," added Perrier.	
    "I think the market was positioned well long of Canada and
we just saw some profit taking after that number and there is
potential to see Canada weaken off a little bit further in the
near term." 	
    At 8:10 a.m. (1210 GMT), the Canadian dollar stood
at C$0.9869 against the U.S. dollar, or $1.0133, up from
Monday's session close at C$0.9879 versus the U.S. dollar, or
$1.0122.	
    Perrier saw C$0.9800-25 as the next area of U.S. dollar
support.	
    Traders noted light volume on Tuesday as a number of
European and Asian stock markets, including ones in Germany,
France and Italy, are closed on Tuesday for the May Day holiday.	
    U.S. manufacturing data later in the day is expected to
drive further direction.	
    Canadian bond prices edged higher, continuing to outperform
U.S. Treasuries after Monday's weaker than expected Canadian
GDP. 	
    The rate-sensitive two-year bond rose 1 Canadian
cent to yield 1.334 percent, while the benchmark 10-year bond
 was up 5 Canadian cents to yield 2.031 percent.
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