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

Wed Apr 30, 2014 4:37pm EDT

* Canadian dollar at C$1.0960 or 91.24 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds Fed policy announcement, details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, April 30 (Reuters) - The Canadian dollar weakened
modestly against the greenback on Wednesday, giving back some of
Tuesday's strong 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 dampened 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 the 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 ended the North American
session at C$1.0960 to the greenback, or 91.24 U.S. cents,
weaker than Tuesday's close of C$1.0951, or 91.32 U.S. cents. 
    In addition to the full slate of economic data, investors
also got a policy announcement from the U.S. Federal Reserve
that gave an upbeat assessment of the U.S. economy's prospects
as the Fed continued to wind down its stimulus program.
 
    "The Fed pushed off the weaker growth in the first quarter
as very much weather-related and expecting things to pick up in
the second quarter," said Scott Smith, senior market analyst at
Cambridge Mercantile Group in Calgary. 
    "Along the same lines as the market had been deciphering the
incoming economic data, so there wasn't too much of a big change
in terms of the policy stance from the Federal Reserve."
    At home, Bank of Canada officials were appearing 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.
He also said the Canadian dollar was still high in historical
terms despite its recent depreciation. 
    Analysts did not expect Poloz to deviate from those comments
in his appearance on Wednesday.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 3 Canadian cents
to yield 1.065 percent and the benchmark 10-year up
35 Canadian cents to yield 2.404 percent.

 (Editing by Peter Galloway)
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