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

Wed Jun 25, 2014 4:42pm EDT

* Canadian dollar at C$1.0722 or 93.27 U.S. cents
    * Bond prices higher across the maturity curve

 (Adds details on market activity, analyst quotes, updates
prices)
    By Leah Schnurr
    TORONTO, June 25 (Reuters) - The Canadian dollar
strengthened to near a 5-1/2-month high against its U.S.
counterpart on Wednesday 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
against the U.S. currency. Surprisingly strong domestic
inflation figures last week helped fuel its drive higher as
investors evaluated whether the Bank of Canada would maintain
its neutral 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
had been 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," Chandler said.
    The Canadian dollar ended the North American
session at C$1.0722 to the greenback, or 93.27 U.S. cents,
stronger than Tuesday's close of C$1.0744, or 93.08 U.S. cents.
    The loonie touched a session high of C$1.0717, just shy of
Tuesday's intra-day peak, which was the currency's highest level
since the beginning of January. The greenback was off 0.2
percent against a basket of currencies.
    "We did get a disappointment on U.S. GDP (which) set things
into action for today, and we've been consolidating thereafter,"
said Mazen Issa, senior Canada macro strategist at TD Securities
in Toronto.
    With a quiet domestic economic calendar this week, analysts
expect the Canadian dollar will drift in the short term, and,
eventually, will need a shift in stance by the Bank of Canada to
make significant gains.
    Lacking catalysts for trade, the loonie could stay at
current levels until investors see next week's potentially
market-moving data, including Canadian monthly gross domestic
product numbers and U.S. unemployment figures, Issa said.
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1 Canadian cent
to yield 1.116 percent and the benchmark 10-year up
19 Canadian cents to yield 2.266 percent.

 (Editing by Peter Galloway)
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