CANADA FX DEBT-C$ firms as economic data weighs on greenback

Mon Mar 28, 2016 4:30pm EDT
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(Adds strategist comment, updates prices)
    * Canadian dollar at C$1.3181, or 75.87 U.S. cents
    * Bond prices higher across the maturity curve

    By Alastair Sharp
    TORONTO, March 28 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Monday as economic
data weighed on the greenback, while Canada's finance minister
expressed optimism that deficit spending will spur domestic
economic growth.
    The Canadian dollar settled at C$1.3181 to the
greenback, or 75.87 U.S. cents, stronger than Friday's close of
C$1.3240, or 75.53 U.S. cents.
    The U.S. dollar hit its lowest level against a basket
of six major currencies since last Wednesday after a deep
downward revision to U.S. consumer spending for January.
    "The revision to consumer spending numbers in January gives
the market a bit of concern in terms of future rate hikes from
the Federal Reserve," said Scott Smith, a senior market analyst
at Cambridge Global Payments.
    In addition, U.S. consumer spending rose only slightly in
February and inflation retreated, suggesting the Fed could
remain cautious about raising interest rates this year.
    Meanwhile, Canada's Liberal government believes the federal
budget will be balanced in "about" five years due to higher
growth spurred by deficit spending, Finance Minister Bill
Morneau said on Sunday. 
    The government gave no target date for eliminating the
deficit when it unveiled the budget last week. 
    The stimulus budget, combined with a modest recovery in oil
and non-commodity exports, makes it likely the Bank of Canada's
next move will be an interest rate hike rather than a cut.
    "The market right now is too pessimistic about interest rate
increases in the U.S. and too optimistic about interest rate
decreases in Canada," said Cambridge's Smith.
    He expects to see the Canadian dollar weaken further,
perhaps hitting C$1.40 in the coming months, before recovering
somewhat as domestic economic data improves, he said.
    The currency's weakest level on Monday was C$1.3286, while
it touched its strongest since March 23 at C$1.3167.
    Oil prices edged lower in thin Easter holiday trading. U.S.
crude prices settled down 0.2 percent at $39.39 a barrel.
    Canadian government bond prices rose across the maturity
curve, with the two-year price up 1 Canadian cent to
yield 0.561 percent and the benchmark 10-year adding
10 Canadian cents to yield 1.261 percent.
    January gross domestic product data is awaited on Thursday.
Analysts expect 0.3 percent growth for the month, which would
reinforce expectations that first-quarter growth will exceed the
Bank of Canada's forecast of 1 percent. 

 (Additional reporting by Fergal Smith; editing by G Crosse,
Nick Zieminski)