CANADA FX DEBT-C$ weakens on sluggish Canadian economic growth data

Fri May 30, 2014 4:39pm EDT

* Canadian dollar at C$1.0842 or 92.23 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details, quotes, updates prices)
    By Leah Schnurr
    TORONTO, May 30 (Reuters) - The Canadian dollar weakened
against the greenback on Friday after data showed the pace of
economic growth in Canada cooled sharply in the first quarter,
though month-end positioning allowed the currency to reverse
most of its initial losses.
    Gross domestic product expanded by an annualized 1.2 percent
in the first three months of the year, well off expectations for
1.8 percent growth. 
    The report sent the loonie to a session low of C$1.0870 but
it trimmed that decline through the session as it benefited from
investors rebalancing on the last trading day of the month, said
Ken Wills, currency strategist and broker at CanadianForex in
Toronto.
    "It lines up pretty well with what the Bank of Canada's
message has been, that there are signs of health but it's a slow
recovery, it's going to be gradual," Wills said.
    The Canadian dollar gained modestly through May though it
has largely stayed within a slim trading range as investors have
weighed generally improving economic data against the Bank of
Canada's neutral stance.
    The loonie also received some modest support from last
week's stronger-than-expected inflation data, which had raised
some expectations in the market that the central bank could
sound a little less dovish in its policy statement next week.
Friday's GDP report appeared to diminish those expectations.
    "This type of report suggests the Bank of Canada won't shift
their tone," said Greg Moore, senior currency strategist at
Royal Bank of Canada in Toronto.
    The Canadian dollar ended the North American
session at C$1.0842 to the greenback, or 92.23 U.S. cents,
slightly weaker than Thursday's close of C$1.0836, or 92.28 U.S.
cents.
    For the month, the U.S. dollar depreciated 1.1 percent
against the loonie.
    After some investors had built up large short positions
against the Canadian dollar earlier in the year, they now appear
to be looking elsewhere for opportunities, Wills said.
    "That trade is being squeezed out, no one is charging into
that," he said. "There's no more talk of us getting to C$1.13,
C$1.14."
    Canadian government bond yields were lower, though the
benchmark 10-year yield stayed above the 11-month low it hit
earlier this week. The 10-year was up 24 Canadian
cents to yield 2.243 percent, while the two-year was
up 1.3 Canadian cents to yield 1.049 percent.

 (Editing by Peter Galloway)
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