CANADA FX DEBT-C$ firms after U.S. GDP disappoints
* Canadian dollar at C$1.0722 or 93.27 U.S. cents * Bond prices higher across the maturity curve (Adds details on market activity, analyst quotes, updates prices) By Leah Schnurr TORONTO, June 25 (Reuters) - The Canadian dollar strengthened to near a 5-1/2-month high against its U.S. counterpart on Wednesday after data that showed the U.S. economy contracted sharply in the first quarter weighed on the greenback. The data helped the loonie resume its recent run higher, making for the fifth session in six days that it has gained against the U.S. currency. Surprisingly strong domestic inflation figures last week helped fuel its drive higher as investors evaluated whether the Bank of Canada would maintain its neutral policy stance. U.S. gross domestic product fell at a 2.9 percent annual rate in the first three months of the year, the economy's worst performance in five years and a steeper rate of contraction than had been estimated. Still, there are signs growth has since rebounded. "Everybody expects a bounce - correctly, I think - in the second quarter, but you're still left with first-half growth that's going to be quite a bit weaker than people had thought," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada in Toronto. "It's undermining the U.S. dollar generally and Canada's the beneficiary there." Still, the slowdown in growth south of the border is ultimately not good news for Canada, whose largest trading partner is the United States, though the market was looking past that for now. "At least for now, people in the market generally are still willing to give the benefit of the doubt that a firm recovery is still intact in the U.S. despite these numbers," Chandler said. The Canadian dollar ended the North American session at C$1.0722 to the greenback, or 93.27 U.S. cents, stronger than Tuesday's close of C$1.0744, or 93.08 U.S. cents. The loonie touched a session high of C$1.0717, just shy of Tuesday's intra-day peak, which was the currency's highest level since the beginning of January. The greenback was off 0.2 percent against a basket of currencies. "We did get a disappointment on U.S. GDP (which) set things into action for today, and we've been consolidating thereafter," said Mazen Issa, senior Canada macro strategist at TD Securities in Toronto. With a quiet domestic economic calendar this week, analysts expect the Canadian dollar will drift in the short term, and, eventually, will need a shift in stance by the Bank of Canada to make significant gains. Lacking catalysts for trade, the loonie could stay at current levels until investors see next week's potentially market-moving data, including Canadian monthly gross domestic product numbers and U.S. unemployment figures, Issa said. Canadian government bond prices were higher across the maturity curve, with the two-year up 1 Canadian cent to yield 1.116 percent and the benchmark 10-year up 19 Canadian cents to yield 2.266 percent. (Editing by Peter Galloway)
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