March 29, 2019 / 7:46 PM / 20 days ago

CANADA FX DEBT-C$ beats G10 rivals in Q1 as bears flee on GDP gain

(Adds strategist quotes and details on activity; updates prices)

* Canadian dollar climbs 0.7 percent against the U.S. dollar

* Loonie touches strongest level since March 21 at 1.3342

* Price of U.S. oil rises 1.4 percent

* Canadian bond prices fall across the yield curve

By Fergal Smith

TORONTO, March 29 (Reuters) - The Canadian dollar rallied to a one-week high against the greenback on Friday, to end the first quarter up more than 2 percent as investors cut bearish bets on the currency after data showed surprising strength in the domestic economy.

The Canadian economy grew by 0.3 percent in January, beating analysts forecasts and reversing recent declines as the construction and manufacturing sectors picked up.

In contrast, U.S. data consumer spending data suggested the economy was fast losing momentum after growth slowed in the fourth quarter.

“Those numbers, strong Canadian data with weak U.S. data just did a whammy on the market.” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

Investors who were short the currency, expecting it to extend recent losses, were forced to cut their positions, Anderson said.

Recent data from the Commodity Futures Trading Commission has showed that investors have added since February to bearish bets on the loonie.

Chances of a Bank of Canada interest rate cut by December dropped to 45 percent from nearly 70 percent before the data, the overnight index swaps market indicated.

Adding to support for the loonie, U.S. crude oil futures settled 1.4 percent higher at $60.14 a barrel. Oil is one of Canada’s major exports.

At 3:19 p.m. (1919 GMT), the Canadian dollar was trading 0.7 percent higher at 1.3353 to the greenback, or 74.89 U.S. cents. The currency touched its strongest intraday level since March 21 at 1.3342.

The loonie fell 1.4 percent in March. Still, it has advanced 2.2 percent since the start of the year, the best performance in the G10.

Gains for the loonie on Friday came as the latest round of U.S.-China trade talks ended on a positive note, boosting stocks.

Canadian government bond prices were lower across the yield curve, with the 10-year falling 57 Canadian cents to yield 1.629 percent.

The gap between Canada’s 10-year yield and the three-month T-bill narrowed by 6.1 basis points to a spread of minus 3.6 basis points. The curve inverted last Friday for the first time since 2007.

Investors trying to work out whether the inversion of the U.S. yield curve signals a looming recession may find clues, but little comfort, in the Canadian bond market, which is less distorted by central bank buying. (Reporting by Fergal Smith Editing by Tom Brown)

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