CANADA FX DEBT-C$ rises as economy contracts less than expected

Tue Mar 31, 2015 4:25pm EDT
 
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* Canadian dollar at C$1.2666 or 78.95 U.S. cents
    * Bond prices mixed across the maturity curve

 (Updates to close)
    By Andrea Hopkins
    TORONTO, March 31 (Reuters) - The Canadian dollar
strengthened against the greenback on Tuesday despite a drop in
oil prices after data showed Canada's economic performance in
January was stronger than expected.
    The economy shrank by a smaller-than-expected 0.1 percent in
the first month of the year as a slump in service-industry
activity was offset by a rebound in oil and gas extraction.
 
    The consensus view had been for a 0.2 percent slide, but
markets had been bracing for an even weaker number, particularly
after Bank of Canada Governor Stephen Poloz said in an interview
published on Monday that 2015's first quarter will look
"atrocious" due to the fallout from the plunge in the price of
oil, a major Canadian export. 
    "The slightly better-than-expected Canadian GDP in January,
though still showing broad weakness, helped to take the Canadian
dollar off its lows," said Camilla Sutton, chief currency
strategist at Scotiabank.
    The Canadian dollar ended the North American
session at 1.2666 to the U.S. dollar, or 78.95 U.S. cents,
slightly stronger than Monday's finish of C$1.2693, or 78.78
U.S. cents.
    Earlier the currency had weakened almost a full cent amid a
U.S. dollar rally and a drop in U.S. crude prices below $48 a
barrel.
    "The U.S. dollar index has been seeing some gains across the
board. There's been enough (global) uncertainties ... it's still
been a very pro-U.S. dollar environment," said Don Mikolich,
executive director, foreign exchange sales at CIBC World
Markets.
    Oil fell as investors waited on a possible nuclear pact that
could release more Iranian crude into an oversupplied market,
although prices backed off session lows with no word of a deal
as the clock ticked toward the talks' self-imposed deadline on
Tuesday. 
    Six world powers, consisting of the United States, Britain,
France, Germany, Russia and China, are negotiating with Iran in
Switzerland for an outline deal on Tehran's nuclear program that
would be integral to removing sanctions on its oil exports.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year falling 0.5
Canadian cents to yield 0.510 percent and the benchmark 10-year
 rising 6 Canadian cents to yield 1.365 percent.

 (With additional reporting by Solarina Ho; editing by Diane
Craft)