April 30, 2013 / 9:19 PM / 4 years ago

Canadian dollar strengthens to two-and-a-half-month high as GDP tops forecasts

The new Canadian 20 dollar bill made of polymer is displayed at the Bank of Canada in Ottawa May 2, 2012.Chris Wattie

TORONTO (Reuters) - The Canadian dollar touched its highest level against the U.S. dollar in two and a half months on Tuesday following the release of stronger-than-expected Canadian gross domestic product data that showed economic growth gained momentum in February.

Equity markets also rose, while the greenback slipped to a two-month low on expectations the U.S. Federal Reserve will continue its bond buying program and the European Central Bank may cut its benchmark interest rate following disappointing economic data. Both central banks will make policy announcements this week. <MKTS/GLOB><FRX/>

"It's a generally positive tone for risk assets today," said David Tulk, chief Canada macro strategist at TD Securities.

The Canadian dollar finished the North American trading session at C$1.0075 versus the U.S. dollar, or 99.26 U.S. cents, not far from the currency's 100-day moving average of C$1.0078. This was stronger than Monday's close at C$1.0116, or 98.85 U.S. cents.

Canada's dollar reached C$1.0054, or 99.46 U.S. cents earlier, its best performance against its U.S. counterpart since February 15.

Statistics Canada said on Tuesday that monthly GDP rose 0.3 percent in February, and the agency revised upward its growth estimate for January, to 0.3 percent from 0.2 percent.

"The strength was pretty broad ... It brings in some upside risks to our forecasts, there's no doubt about that," said Robert Kavcic, senior economist at BMO Capital Markets, adding that 2 percent quarterly growth is no longer impossible.

The hard-hit manufacturing sector continued to recover with 0.8 percent growth, while the end of a labor dispute in professional hockey continued to boost the arts and entertainment sector.

"(It's) a confirmation of our wider narrative that after slowing quite sharply over the second half of 2012, the Canadian economy's on a bit of an uptick, which is definitely encouraging," said Tulk.

"The fact that we can come into (the second quarter) with a little bit more momentum is reasonably constructive and that's helped to lift the currency."

The price of Canadian government debt was higher across the curve, with the two-year bond up 1.9 Canadian cents, yielding 0.923 percent, and the benchmark 10-year bond rising six Canadian cents to yield 1.695 percent.

Editing by Steve Orlofsky

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