CANADA FX DEBT-C$ firms after disappointing U.S. GDP

Wed Jun 25, 2014 9:27am EDT

* Canadian dollar at C$1.0726 or 93.23 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, June 25 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday, putting
it close to a 5-1/2-month high after data that showed the U.S.
economy contracted sharply in the first quarter weighed on the
greenback.
    The data helped the loonie resume its recent run higher,
making for the fifth session in six days that it has gained.
Surprisingly strong domestic inflation figures last week helped
fuel the currency as investors evaluate the Bank of Canada's
policy stance.
    U.S. gross domestic product fell at a 2.9 percent annual
rate in the first three months of the year, the economy's worst
performance in five years and a steeper rate of contraction than
previously estimated. Still, there are signs growth has since
rebounded. 
    "Everybody expects a bounce - correctly, I think - in the
second quarter, but you're still left with first-half growth
that's going to be quite a bit weaker than people had thought,"
said Mark Chandler, head of Canadian fixed income and currency
strategy at Royal Bank of Canada in Toronto.
    "It's undermining the U.S. dollar generally and Canada's the
beneficiary there."
    Still, the slowdown in growth south of the border is
ultimately not good news for Canada, whose largest trading
partner is the United States, though the market was looking past
that for now.
    "At least for now, people in the market generally are still
willing to give the benefit of the doubt that a firm recovery is
still intact in the U.S. despite these numbers," said Chandler.
    The Canadian dollar was at C$1.0726 to the
greenback, or 93.23 U.S. cents, stronger than Tuesday's close of
C$1.0744, or 93.08 U.S. cents.
    The loonie was not far from Tuesday's high of C$1.0716,
which was the currency's highest level since the beginning of
January. The greenback was off 0.2 percent against a basket of
currencies.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 2-1/2 Canadian
cents to yield 1.109 percent and the benchmark 10-year
 up 32 Canadian cents to yield 2.251 percent.












 (Editing by Meredith Mazzilli)
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