CANADA FX DEBT-GDP rebound pushes C$ higher on last day of tough quarter

Mon Mar 31, 2014 5:00pm EDT

* Canadian dollar at C$1.1055 or 90.46 U.S. cents
    * Bond prices mixed across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, March 31 (Reuters) - The Canadian dollar
strengthened against the greenback on Monday, boosted by data
that showed Canada's economy rebounded from a drop in December
at a faster-than-expected pace in January.
    Still, the loonie was on track to mark its biggest quarterly
downturn since 2011, largely due to the sharp hit the currency
took in January.
    Canadian gross domestic product grew by 0.5 percent in
January, bouncing back from a decline of 0.5 percent in
December, when the economy was hampered by unusually harsh
winter weather. 
    The loonie had been on a strong footing heading into the GDP
report and it touched a session high shortly after the data was
released.
    While the report showed some underlying strength in the
economy, the currency's move was likely a knee-jerk reaction
from investors who have been bearish over Canadian data, said
Scott Smith, senior market analyst at Cambridge Mercantile Group
in Calgary.
    "It essentially erases the decline we saw in December, so
looking forward, it's not a huge surprise or really changes
anything too much in the fundamental backdrop for the Canadian
economy," Smith said.
    The Canadian dollar ended the North American
session at C$1.1055 to the greenback, or 90.46 U.S. cents,
stronger than Friday's close of C$1.1060, or 90.42 U.S. cents.
It touched a session high of C$1.1002.
    Investors were also digesting comments from U.S. Federal
Reserve Chair Janet Yellen, who said the central bank's
"extraordinary" commitment to boosting the economy will be
needed for some time to come. 
    The Fed has been reducing its amount of stimulative bond
purchases and the program is set to be wound down later this
year. 
    "If they continue to taper at $10 billon a month and it
doesn't upset the apple cart, and we see some consistency in the
economic data, then that could ultimately feed through and help
Canada," said Gareth Sylvester, director at Klarity FX in San
Francisco. "But we're talking about three, four, five months
down the line versus tomorrow." 
    The currency rebounded strongly last week from a recent
4-1/2 year low. Still, many analysts believe that a number of
factors, including a sluggish economy and a dovish Bank of
Canada, are likely to exert pressure on the loonie.
    For the quarter, the greenback appreciated 4.1 percent
against the loonie, putting the Canadian dollar on track for
biggest quarterly downturn since the third quarter of 2011.
    "We're still of the opinion the U.S. dollar-Canadian dollar
the price action should be guided higher over the next two or
three months toward that C$1.1450 to C$1.15 area," Sylvester
said.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.068 percent, while the benchmark 10-year 
was off 10 Canadian cents to yield 2.458 percent.

 (Editing by Peter Galloway)
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