Loonie hits 2-week high after GDP data, central bank moves

Wed Nov 30, 2011 11:40am EST
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar hit its highest level in more than two weeks against the U.S. dollar on Wednesday, getting a boost from stronger than expected domestic growth data and a move by major central banks to increase liquidity in the global financial system.

The currency touched a session high of C$1.0124 against the U.S. dollar, or 98.78 U.S. cents, its best level since November 14.

Data showed the Canadian economy grew at an annualized rate of 3.5 percent in the third quarter, recovering from a 0.5 percent contraction in the second quarter as Canada felt the economic effects of Japan's earthquake and tsunami.

A Reuters survey of analysts had forecast a rise of 3.0 percent. By contrast, third-quarter real gross domestic product in the United States grew 2.0 percent.

"It's certainly stronger than (the Bank of Canada's) 2 percent growth that they projected in October, however I think their main concern is the external environment," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"I think it still argues for the bank to keep policy accommodative."

Higher interest rates tend to strengthen currencies by attracting international capital flows, and vice versa.

Canada's primary dealers don't expect the central bank to resume raising interest rates until late next year or 2013, and traders pared back bets of future interest rate cuts following the GDP data.   Continued...