CANADA FX DEBT-C$ weakens on sluggish Canadian economic growth data
* Canadian dollar at C$1.0842 or 92.23 U.S. cents * Bond prices higher across the maturity curve (Adds details, quotes, updates prices) By Leah Schnurr TORONTO, May 30 (Reuters) - The Canadian dollar weakened against the greenback on Friday after data showed the pace of economic growth in Canada cooled sharply in the first quarter, though month-end positioning allowed the currency to reverse most of its initial losses. Gross domestic product expanded by an annualized 1.2 percent in the first three months of the year, well off expectations for 1.8 percent growth. The report sent the loonie to a session low of C$1.0870 but it trimmed that decline through the session as it benefited from investors rebalancing on the last trading day of the month, said Ken Wills, currency strategist and broker at CanadianForex in Toronto. "It lines up pretty well with what the Bank of Canada's message has been, that there are signs of health but it's a slow recovery, it's going to be gradual," Wills said. The Canadian dollar gained modestly through May though it has largely stayed within a slim trading range as investors have weighed generally improving economic data against the Bank of Canada's neutral stance. The loonie also received some modest support from last week's stronger-than-expected inflation data, which had raised some expectations in the market that the central bank could sound a little less dovish in its policy statement next week. Friday's GDP report appeared to diminish those expectations. "This type of report suggests the Bank of Canada won't shift their tone," said Greg Moore, senior currency strategist at Royal Bank of Canada in Toronto. The Canadian dollar ended the North American session at C$1.0842 to the greenback, or 92.23 U.S. cents, slightly weaker than Thursday's close of C$1.0836, or 92.28 U.S. cents. For the month, the U.S. dollar depreciated 1.1 percent against the loonie. After some investors had built up large short positions against the Canadian dollar earlier in the year, they now appear to be looking elsewhere for opportunities, Wills said. "That trade is being squeezed out, no one is charging into that," he said. "There's no more talk of us getting to C$1.13, C$1.14." Canadian government bond yields were lower, though the benchmark 10-year yield stayed above the 11-month low it hit earlier this week. The 10-year was up 24 Canadian cents to yield 2.243 percent, while the two-year was up 1.3 Canadian cents to yield 1.049 percent. (Editing by Peter Galloway)
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