CANADA FX DEBT-C$ gains as Canada current account deficit narrows

Thu May 29, 2014 4:23pm EDT

* Canadian dollar at C$1.0836 or 92.28 U.S. cents
    * 10-year bond yield backs off 11-month low

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, May 29 (Reuters) - The Canadian dollar strengthened
against the greenback on Thursday, helped by data that showed
the country's current account deficit narrowed in the first
quarter, suggesting the export sector is starting to recover.
    The current account report helped the loonie retain the
positive momentum it had in the overnight session and offset
data that showed the U.S. economy contracted in the first
quarter for the first time in three years. 
    Market attention was also on the bond market, where Canadian
government bond yields overcame an initial drop to push higher,
taking their cue from U.S. Treasuries. Yields on both Canadian
and U.S. 10-year government bonds had earlier hit the lowest
levels since last June. 
    The drop in U.S. yields in the late morning pressured the
U.S. dollar-Canadian dollar pairing, said Greg Anderson, global
head of foreign exchange strategy at BMO Capital Markets, and
that benefited the loonie.
    "As long as U.S. rates continue to inch lower, probably U.S.
dollar-Canadian dollar will too, although there does seem to be
good support around C$1.0830," Anderson said.
    On the economic front, a stronger performance by exporters
helped the Canadian current account deficit narrow to C$12.39
billion ($11.37 billion) in the first quarter. Market analysts
had expected a shortfall of C$13.10 billion. 
     The Canadian dollar ended the North American
session at C$1.0836 to the greenback, or 92.28 U.S. cents,
stronger than Wednesday's close of C$1.0875, or 91.95 U.S.
cents.   
    Still, the loonie remained within the trading range it has
been in in recent weeks as the market weighs modestly improving
economic data against the Bank of Canada's neutral policy
stance.
    "After the slight selloff we saw yesterday in the loonie,
we're moving back to our comfortable range in the mid-C$1.08s
and we're really trying to find that next catalyst to shake the
market up," said Scott Smith, senior market analyst at Cambridge
Mercantile Group in Calgary.
    Unless Friday's report on first-quarter economic growth in
Canada comes in significantly outside of the consensus forecast,
the market will likely have to wait for next week, when the May
employment report and the Bank of Canada's latest policy
statement are released, to see a real driver, Smith said.
    Bond prices were lower across the maturity curve with the
benchmark 10-year down 29 Canadian cents to yield
2.680 percent, while the two-year was down 2.8
Canadian cents to yield 1.053 percent.

 (Editing by Peter Galloway)
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