CANADA FX DEBT-C$ firms after Canada GDP; awaits Bernanke, ECB

Fri Aug 31, 2012 9:36am EDT
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* C$ firms to $0.9873 vs. US$, or $1.0129
    * Bond prices fall across the curve
    * Canada GDP in second quarter beats forecasts
    * Markets await Bernanke at 10:00 a.m. ET

    By Solarina Ho
    TORONTO, Aug 31 (Reuters) - The Canadian dollar climbed
against the U.S. dollar on Friday in the wake of data showing
the country's economy grew at a quicker pace than expected and
against a backdrop of positive news out of Europe.
    Canada's GDP grew at an annualized 1.8 percent in the second
quarter, exceeding analyst estimates, as strong business
investment offset a small fiscal drag, Statistics Canada said.
    "It's slightly better than expected so it might give the
currency a bit of a boost, especially given the fact that
underlying financial markets are relatively firm this morning,
but I don't think the GDP report is going to make a lasting
impact on the currency," said Doug Porter, deputy chief
economist with BMO Capital Markets.
    Market participants were also looking ahead to impending
remarks by U.S. Federal Reserve Chairman Ben Bernanke.
    "I suspect what Bernanke says today and what we hear from
the ECB next week will be more important," said Porter.
    Bernanke addresses a symposium of central bankers in Jackson
Hole, Wyoming, at 10:00 a.m. ET (1400 GMT), and his remarks may
offer clues on the Fed's next policy steps.
    European Central Bank member, Benoit Coeure, strengthened
market expectations that the ECB will intervene to help tackle
the region's three-year-old debt crisis by saying ECB bond
purchases in the sovereign debt market must be subject to strict
conditionality. The comment fueled hopes the central bank will
buy Spanish and Italian government bonds to reduce their high
borrowing costs. 
    At 9:13 a.m. (1313 GMT), the Canadian dollar stood at
C$0.9873, or $1.0129, firmer than Thursday's North American
session close at C$0.9923 versus the greenback, or $1.0078. It
had touched a session high of C$0.9866, or $1.0136 after the GDP
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that traders
increased bets on a rate hike in 2013 after the data. 
    Riskier assets were largely recovering from modest falls
this week ahead of Bernanke's address in Jackson Hole, with few
in the market expecting the Fed chief to signal anything major,
such as a third round of quantitative easing or bond buying.
    Canadian bond prices fell across the curve on Friday, with
the two-year bond down 4.5 Canadian cents to yield
1.150 percent and the benchmark 10-year bond down 3
Canadian cents to yield 1.774 percent.