CANADA FX DEBT-C$ gains with solid GDP data, up 0.4 pct for week

Fri Sep 30, 2016 4:56pm EDT
 
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(Adds analyst comment, updates prices to close)
    * Canadian dollar ends at C$1.3117, or 76.24 U.S. cents
    * Bond prices lower across the maturity curve
    * 10-year yield touches a fresh historic low at 0.904
percent

    By Alastair Sharp
    TORONTO, Sept 30 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Friday as its
economy grew more than expected in July, but its muted gains
over a week in which oil prices surged raised questions about
the currency's ability to further appreciate.
    Canada's gross domestic product grew 0.5 percent in July,
fueled by a rebound in oil and gas extraction after wildfires in
Alberta earlier this year, Statistics Canada data showed. The
economic growth topped analysts' forecasts for a gain of 0.3
percent. 
    "All in all a solid report ... it should definitely push
back against some of the recent pessimism we see in the market,"
said Andrew Kelvin, senior rates strategist at TD Securities.
    The currency's muted response to that data and the sharp
weekly gain in the price of oil, a major Canadian export, raised
concerns for Adam Button, a currency analyst at ForexLive in
Montreal.
    "The inability of the Canadian dollar to make any kind of
significant gain on Friday despite a stellar GDP report is a
worrisome sign," he said, calling the loonie "extremely
vulnerable".
    The currency settled at C$1.3117 to the greenback,
or 76.24 U.S. cents, stronger than Thursday's close of C$1.3149,
or 76.05 U.S. cents. Its strongest level of the session was
C$1.3088, while its weakest was C$1.3195.
    It rose 0.4 percent over the week, while U.S. crude prices
were up about 7 percent, helped by Wednesday's announcement of
an OPEC deal aimed at removing some production from an
oversupplied market.
    On Tuesday, the loonie hit its weakest in nearly six months.
    In other domestic data, producer prices unexpectedly fell in
August as meat and dairy products saw the largest decrease in
nearly nine years, while lower prices for energy and petroleum
products also weighed, data from Statistics Canada showed.
 
    Canadian government bond prices fell across the yield curve,
with the two-year down 4.5 Canadian cents to yield
0.519 percent and the benchmark 10-year off 40
Canadian cents to yield 0.997 percent.
    Earlier, the 10-year yield touched a fresh historic low at
0.904 percent.    
    ForexLive's Button said those trading the U.S.-Canada
currency pair may be starting to get jitters about what a
possible Donald Trump victory in November's U.S. presidential
election could mean for Canada's trade relationship with the
United States.
    "It's like a Brexit for Canada and someone else is doing the
voting," he said.

 (Additional reporting by Fergal Smith; Editing by Nick
Zieminski)