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