CANADA FX DEBT-C$ firms after stronger-than-expected Q3 GDP

Fri Nov 29, 2013 9:34am EST
 
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* C$ at C$1.0568 vs US$, or 94.63 U.S. cents
    * GDP 2.7 percent in 3rd quarter, vs forecast of 2.5 percent
    * Bond prices lower across the maturity curve

    By Leah Schnurr
    TORONTO, Nov 29 (Reuters) - The Canadian dollar strengthened
to a session high against the greenback on Friday, backing
further away from recent four-month lows after data showed the
domestic economy had more strength than expected in the third
quarter.
    The 2.7 percent annualized pace of growth - the fastest rate
in two years - was driven mainly by consumer spending and
business inventory accumulation, though there were also signs of
a rebound in business investment. 
    While the reading beat market forecasts, it also came on the
heels of a disappointing second quarter. Averaging the second
and third quarter gives a growth rate of a little over 2
percent, "a fair reflection of the underlying growth trend in
the economy," said Doug Porter, chief economist at BMO Capital
Markets in Toronto.
    "The 2.7 is a bit of an outlier and I suspect it will come
down to earth somewhat in the fourth quarter," he said.
    The Canadian dollar was at C$1.0568 to the
greenback, or 94.63 U.S. cents, stronger than Thursday's close
of C$1.0587 or 94.46 U.S. cents. 
    The Canadian currency has lost more than 2 percent since
late October, hurt by a retreat in the Bank of Canada's hawkish
tilt and expectations the U.S. Federal Reserve will soon move to
withdraw some monetary stimulus. The loonie hit C$1.0603 on
Wednesday, its lowest level since early July.
    The policy shift from the Bank of Canada has markets
expecting interest rates will stay at 1 percent into 2015.
 
    Friday's GDP report puts a "slightly healthier glow" on the
economy than the Bank of Canada suspected, making the central
bank likely to stay neutral at their meeting next week, said
Porter.
    "I don't think there's a compelling case for them to ratchet
up the dovishness yet."
    The Bank of Canada will release its interest rate decision
on Wednesday.
    The two-year bond dipped 2 Canadian cents to
yield 1.100 percent, while the benchmark 10-year bond
 was off 15 Canadian cents to yield 2.556 percent.