CANADA FX DEBT-C$ strengthens to one-week high against broadly weaker greenback
* Canadian dollar at C$1.3109, or 76.28 U.S. cents * C$ touches its strongest since July 22 at C$1.3075 * Bond prices higher across the maturity curve By Fergal Smith TORONTO, July 29 (Reuters) - The Canadian dollar strengthened to a one-week high against its broadly weaker U.S. counterpart on Friday as data showing the U.S. economy grew far less than expected in the second quarter offset weak domestic data and a three-month low for oil prices. U.S. crude prices were down 0.49 percent to $40.94 a barrel after having fallen below $41 for the first time since April. Canada's economy suffered its biggest one-month contraction in May since March 2009 as wildfires in northern Alberta caused a sharp drop in oil extraction, reinforcing expectations that the economy shrank in the second quarter. "The issue now is production should come back in June," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "It should contribute to GDP bouncing strongly in the third quarter after decline in the second." The U.S. dollar fell against a basket of major currencies after a round of modest monetary policy easing from the Bank of Japan disappointed investors. This was followed by the weaker-than-expected U.S. gross domestic product data. At 9:34 a.m. EDT (1334 GMT), the Canadian dollar was trading at C$1.3109 to the greenback, or 76.28 U.S. cents, stronger than Thursday's close of C$1.3161, or 75.98 U.S. cents. The currency's weakest level of the session was C$1.3185, while it touched its strongest since July 22 at C$1.3075. Still, the Canadian dollar lost ground against some other major currencies. Against the euro it touched C$1.4665, its weakest since June 6. The implied probability of a Bank of Canada rate cut this year rose slightly to 32 percent, overnight index swaps data showed. It was 28 percent before the U.S. and Canadian data. Canadian government bond prices were higher across the maturity curve in sympathy with U.S. Treasuries. The two-year bond rose 5 Canadian cents to yield 0.561 percent and the benchmark 10-year climbed 7 Canadian cents to yield 1.062 percent. The Canada-U.S. 10-year spread moved 1.7 basis points to -42.5 basis points, its smallest gap since July 8, as U.S. Treasuries outperformed. (Reporting by Fergal Smith; Editing by Jeffrey Hodgson)
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