CANADA FX DEBT-C$ weakens narrowly ahead of U.S. GDP data

Thu Oct 27, 2016 4:55pm EDT
 
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(Adds strategist comment, updates prices to close)
    * Canadian dollar settles at C$1.3387, or 74.70 U.S. cents
    * Bond prices lower across sharply steeper yield curve

    By Alastair Sharp
    TORONTO, Oct 27 (Reuters) - The Canadian dollar weakened
slightly against its broadly stronger U.S. counterpart on
Thursday, as investors awaited U.S. economic growth data to see
whether a recent weakening trend for the loonie has more room to
run.
    The U.S. government will publish its first estimate of
third-quarter gross domestic product on Friday, which could
influence the Federal Reserve as it mulls whether to hike
interest rates this year.
    "If you get something south of 2 (percent growth), the
(U.S.) dollar strength could fall flat on its face, but if you
get something north of 2.5 (percent), you're going to see
dollar/Canada move well into C$1.34," said Michael Goshko,
corporate risk manager at Western Union Business Solutions.
    The Canadian dollar settled at C$1.3387 to the
greenback, or 74.70 U.S. cents, slightly weaker than Wednesday's
close of $1.3382, or 74.73 U.S. cents.
    It has eased from C$1.30 since Oct. 19, when the Bank of
Canada surprised investors by saying it had actively discussed
adding more monetary stimulus to speed up the country's economic
recovery. 
    Higher oil prices provided some support for the Canadian
currency, while a breakthrough on a free-trade agreement with
the European Union improved its longer-term outlook.
  
    "I doubt it is going to have that much impact (on the
Canadian dollar) from a short-term point of view. From a much
longer-term perspective, it's positive in that it should help
Canada diversify its export penetration," said Shaun Osborne,
chief currency strategist at Scotiabank.
    The currency's strongest level of the session was C$1.3353,
while its weakest was C$1.3408. That was its weakest level since
March 9.
    New orders for U.S. manufactured capital goods unexpectedly
fell in September, which could temper expectations for an
acceleration in business spending in the fourth quarter.
 
    Weak U.S. business investment has hampered a long-awaited
pick-up in growth of Canada's non-energy exports. 
    Canadian government bond prices were lower across the yield
curve in sympathy with U.S. Treasuries. The two-year 
price fell 5 Canadian cents to yield 0.583 percent and the
benchmark 10-year declined 70 Canadian cents to
yield 1.236 percent.
    The curve steepened sharply as the spread between the
two-year and 10-year yields widened by 5.1 basis points to its
most since June at 65.3 basis points, indicating
underperformance for longer-dated bonds.
    Losses for core sovereign debt markets came after data
showed Britain's economy slowed only slightly in the three
months after the Brexit vote. 

 (Additional reporting by Fergal Smith, editing by G Crosse)