CANADA FX DEBT-Loonie extends rally to hit one-week high

Wed Aug 27, 2014 9:52am EDT

* Canadian dollar at C$1.0894 or 91.79 U.S. cents
    * Bond prices higher across the maturity curve

    By Leah Schnurr
    TORONTO, Aug 27 (Reuters) - The Canadian dollar strengthened
against the greenback on Wednesday, extending the previous
session's gains as it benefited from broad U.S. dollar weakness
and as investors looked ahead to key data releases at the end of
the week.
    The rally in the U.S. currency over the past two months has
been one of the major forces behind the loonie's recent weakness
that sent it close to the key resistance level of C$1.10 earlier
in the week. 
    The softness in the greenback on Wednesday drove the
Canadian dollar to a one-week high, with the currency pairing
testing support around C$1.09.
    "As much as we want to look at Canadian specific factors, I
think the bigger story is just a broader U.S. dollar move lower,
where you're getting some of the geopolitical premium that had
been priced in slipping away," said David Tulk, chief Canada
macro strategist at TD Securities in Toronto.
    The leaders of Ukraine and Russia held talks late Tuesday on
resolving the five-month conflict between the two countries.
Meanwhile, an open-ended ceasefire in the Gaza war was
holding.  
     The Canadian dollar was at C$1.0894 to the
greenback, or 91.79 U.S. cents, stronger than Tuesday's close of
C$1.0952, or 91.31 U.S. cents.
    A quiet economic calendar has left the loonie without many
domestic catalysts until the gross domestic product report is
released on Friday. Analysts forecast the economy picked up to a
2.7 percent rate of growth in the second quarter, bouncing back
from a slowdown in the first three months of the year. 
    Although there is a risk that growth could accelerate more
than the market expects, that is unlikely to cause the Bank of
Canada to alter its cautious tone when it releases its monetary
policy statement next week, said Tulk.
    "We've seen this from the bank time and time again; anything
that looks like it's either stronger than forecast or something
with a seemingly positive undertone, they are inclined to find
the dark cloud hanging somewhere out in the distance. That's
their overarching strategy, just to sound as cautious as they
can." 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 1-1/2 Canadian
cents to yield 1.097 percent and the benchmark 10-year
 up 28 Canadian cents to yield 2.014 percent.

 (Editing by Chizu Nomiyama)
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