CANADA FX DEBT-C$ retreats as GDP soft in Canada, stronger in U.S.
* C$ at C$1.325 vs US$, or 96.85 U.S. cents * Canada's GDP grew 0.2 pct in May * U.S. Q2 GDP grew 1.7 pct annualized * C$ hits strongest level against Aussie in nearly 3 years * 10-yr yield near 2-yr high; 30-yr highest since Oct. 2011 By Solarina Ho TORONTO, July 31 (Reuters) - The Canadian dollar softened to its lowest level in more than a week against the U.S. dollar on Wednesday after data showed unexpectedly strong 1.7 percent growth U.S. GDP in the second quarter and weaker-than-foreseen GDP growth in Canada in May. Canadian gross domestic product grew by 0.2 percent in May from April, a lower-than-forecast figure that trimmed expectations for second-quarter GDP. The median forecast in a Reuters survey was for 0.3 percent growth, ahead of what is expected to be a poor June reading due to floods in Alberta and a construction strike in Quebec. But U.S. economic growth unexpectedly accelerated during the second quarter, expanding at a 1.7 percent annual rate and laying a firmer foundation for the rest of the year that could bring the U.S. Federal Reserve closer to cutting back on its stimulus measures. "A pleasant surprise on the upside for U.S. growth prospects heading into what is expected to be even stronger growth in the second half of the year," said Craig Wright, chief economist at Royal Bank of Canada. "On a relative basis, GDP in the U.S. looked a little better, Canada looked a little softer. That, alongside softer commodity prices, explains the slightly weaker Canadian dollar," he said. The Canadian dollar was trading at C$1.319 versus the U.S. dollar, or 96.91 U.S. cents, at 9:33 a.m. (1333 GMT), after dropping as low as C$1.0337, or 96.74 U.S. cents, earlier. The currency was weaker than it was immediately before the GDP figures were released and down from Tuesday's North American session close of C$1.0302, or 97.07 U.S. cents. The Canadian dollar was outperforming other major currencies, however, and touched its strongest level against the Australian dollar in nearly three years. The currency is expected to find further direction when the Fed issues its latest policy statement later on Wednesday. Investors will be seeking clues on when the U.S. central bank will curb its bond-buying stimulus program. Longer-term bond yields have risen over the last few months as encouraging economic data has bolstered expectations the Fed will begin winding down its bond-buying plan this fall. The Bank of Canada is seen raising interest rates next year. Government bond prices generally fell across the maturity curve. The two-year bond was off 4.2 Canadian cents to yield 1.204 percent, while the benchmark 10-year bond fell 45 Canadian cents to yield 2.572 percent, its highest yield since August, 2011. Yields on the 30-year bond crossed the 3 percent mark to touch the highest level since October 2011.
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