CANADA FX DEBT-C$ weakens after U.S. GDP disappoints

Wed Apr 30, 2014 9:51am EDT

* Canadian dollar at C$1.0972 or 91.14 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, April 30 (Reuters) - The Canadian dollar weakened
against the greenback on Wednesday, giving back some of
Tuesday's gains as investors took in a slew of economic data on
both sides of the border, including Canadian economic growth
figures for February that came in as expected. 
    The domestic economy grew by 0.2 percent in February,
expanding for the second month in a row, data showed. A separate
report showed producer prices rose by a slightly less than
expected 0.4 percent in March.  
    But in the United States, the economy barely grew in the
first quarter, cooling to its slowest pace of expansion since
the fourth quarter of 2012. 
    That weighed on the loonie as it dented hopes that a
strengthening economy in the United States will help boost
Canada's economy.
    "This is one of those strange instances where the weakness
in the U.S. number seems to have driven a bit more of a flight
to quality," said David Tulk, chief Canada macro strategist at
TD Securities in Toronto. "Unfortunately, that does come at the
expense of Canada."
    Tulk said that U.S. economic sectors that were weak in the
first quarter are the ones that must strengthen if the Canadian
economy is to rotate to export-led growth, as the Bank of Canada
desires. "It's those sectors that do tie quite closely to
Canadian exports, so it's definitely a step back in that
rotation narrative that is very much at the center of the Bank
of Canada's expectation." 
    The Canadian dollar was at C$1.0972 to the
greenback, or 91.14 U.S. cents, weaker than Tuesday's close of
C$1.0951, or 91.32 U.S. cents. The currency was hovering around
its 100-day moving average after breaking through it on Tuesday.
    Investors were turning their focus to events later in the
day in both Canada and the United States.
    South of the  border, the Federal Reserve will release a
statement at the conclusion of a two-day policy-setting meeting.
The Fed is expected to continue winding down its economic
stimulus program, which has typically boosted the U.S. dollar to
the detriment of the loonie. 
    At home, Bank of Canada officials will appear on Parliament
Hill for a second day of questioning. During a question and
answer session on Tuesday, Governor Stephen Poloz said he
remains open to the possibility of an interest rate cut and that
the Canadian dollar was still high in historical terms, despite
its recent depreciation. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up half a Canadian
cent to yield 1.079 percent and the benchmark 10-year
 up 22 Canadian cents to yield 2.419 percent.

 (Editing by Peter Galloway)
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