CANADA FX DEBT-C$ little changed by weak GDP; await US payrolls

Wed Aug 31, 2011 4:42pm EDT
 
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   * C$ ends at C$0.9794 vs US$, or $1.0210
 * Weak Canada GDP Q2 data offset by June strength
 * Bond prices lower across curve
 (Updates to close, adds details, commentary)
 By Andrea Hopkins
 TORONTO, Aug 31 (Reuters) - The Canadian dollar ended the
day slightly softer against the greenback on Wednesday as
unexpectedly weak domestic GDP data was offset by some strength
in the details and a rise in global stock markets.
 In Canada, data showed the economy shrank in the second
quarter -- the first quarterly fall since the 2008-09 recession
-- largely due to temporary factors such as the earthquake and
tsunami in Japan. [ID:nN1E77U099].
 However, growth in June rebounded after falling in May,
strength that mitigated the overall gloom of the report and
shielded the Canadian currency from selling.
 "It wasn't a great GDP number, but the details weren't as
terrible as headline number was," said Steve Butler, director
of foreign exchange trading at Scotia Capital.
 "So we end the day right back where we started -- a whole
lot of to-ing and fro-ing without a lot of results."
 The Canadian dollar CAD=D4 ended the session at C$0.9794
to the U.S. dollar, or $1.0210, down only slightly from
Tuesday's North American session close of C$0.9782 to the U.S.
dollar, or $1.0223.
 The currency was still down more than 2 U.S. cents from the
end of July, when it finished the month at C$0.9555.
 The Canadian dollar tumbled along with equity and commodity
markets at the start of August as concerns about the U.S.
fiscal outlook and debt downgrade triggered widespread selling.
On Aug. 9 it briefly weakened below parity with the U.S. dollar
for the first time since February.
 Sal Guatieri, senior economist at BMO Capital Markets, said
Canada's better-than-expected June GDP data helped cushion the
blow from the disappointing quarterly figure, raising hopes
that the economy is bouncing back in the third quarter.
 The Canadian GDP data did little to change the view that
the Bank of Canada will not increase rates until next year.
 Economists and strategists in a Reuters poll released on
Wednesday forecast that the central bank will wait until at
least the second quarter of next year to hike rates as global
monetary policy stays accommodative due to slow economic
growth. [CA/POLL]
 Butler said the Canadian currency is likely to remain
relatively flat as investors await the closely tracked U.S.
nonfarm payrolls release on Friday and watch developments in
global stock markets, which rose slightly on Wednesday.
 The Canadian dollar often tracks stock market gains and
losses, benefiting when investors favor riskier assets such as
equities and Canada's commodity-linked currency.
 "Markets will be paying close attention to equities.
They've made a decent run in the last couple days but in the
end they've never really made a lot of headway," Butler said.
 "If we see a negative day for equities (on Thursday), I
wouldn't be surprised to see a pushback up toward C$0.9820,
maybe even C$0.9840," Butler said.
 Stock markets around the world rose for a fourth straight
day on Wednesday, trimming August's sharp losses as hopes for
more help from the U.S. Federal Reserve drove buying in
equities, oil and metals [MKTS/GLOB].
 Canadian government bond prices were down across the curve,
following U.S. Treasuries as investors moved away from
safe-haven government debt. [US/]
 The two-year bond CA2YT=RR was down 11 Canadian cents to
yield 1.086 percent, while the 10-year bond CA10YT=RR slipped
72 Canadian cents to yield 2.483 percent.
 (Editing by Jeffrey Hodgson)