CANADA FX DEBT-C$ loses momentum after U.S. GDP data

Thu Aug 28, 2014 10:02am EDT

* Canadian dollar at C$1.0853 or 92.14 U.S. cents
    * 10-year bond yield at lowest since May 2013

    By Leah Schnurr
    TORONTO, Aug 28 (Reuters) - The Canadian dollar was little
changed on Thursday, giving up much of its earlier gains after
second-quarter growth south of the border was revised higher,
and as investors looked ahead to key domestic economic data at
the end of the week.
    Still, the loonie is up about 0.8 percent for the week so
far, fueled by a sharp rise in Wednesday's session and putting
it on track for its best week since late June.
    Analysts said there are a number of factors behind the
currency's recent strength, including technical momentum, fund
flow speculation stemming from Burger King's plans to
buy Tim Hortons, and investor repositioning heading
into the end of the month.
    Attention was also increasingly turning to Friday's gross
domestic product report, with Canadian economic growth
forecasted to pick up to 2.7 percent in the second quarter,
bouncing back from a slowdown in the first three months of the
year. 
    Analysts say there is the potential for the figures to come
in higher than expected, which would support the loonie.
    Even so, the loonie's recent strength is not expected to
last.
    "This is the dip that most U.S. dollar bulls have been
waiting for and, as such, we don't see this as the start of a
new trend of strength in the loonie," said Bipan Rai, director
of foreign exchange strategy at CIBC World Markets in Toronto. 
    "It's the other way around, really, we expect this move to
reverse as we head into September and markets begin looking
toward the Federal Reserve tightening again."
    The Canadian dollar was at C$1.0853 to the
greenback, or 92.14 U.S. cents, a touch stronger than
Wednesday's close of C$1.0855, or 92.12 U.S. cents.
    The loonie came off its high for the session at C$1.0837
shortly after the U.S. data was released. 
    Data earlier on Thursday that showed Canada's current
account deficit narrowed slightly in the second quarter elicited
a muted reaction from the currency. 
    Investors were also keeping an eye on the risk aversion
present in broader markets after Ukraine accused Russia of
bringing troops into the southeast of the country.
 
    Canadian government bond yields were lower across the board,
with the yield on the benchmark 10-year at its
lowest level since May of last year at 1.994 percent. The
two-year up half a Canadian cent in price to yield
1.101 percent.

 (Editing by Meredith Mazzilli)
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