CANADA FX DEBT-C$ firms vs struggling greenback, election weighs
* C$ firms to $1.0542
* Underperforms other commodity-linked currencies
* Markets wary of uncertainty as NDP surges in polls
* Bonds follow Treasuries higher on weak GDP (Recasts. Adds analyst comment, further details)
By Solarina Ho and Claire Sibonney)
TORONTO, April 28 (Reuters) - Canada's dollar strengthened against its U.S. counterpart on Thursday, boosted by the greenback's broadbased slide following dovish comments by the U.S. Federal Reserve and underwhelming economic data.
The U.S. dollar plumbed a three-year low against a basket of currencies a day after the Fed signaled it would prolong its ultra-loose monetary policy. [FRX/]
Concern about the U.S. recovery was reinforced by data on Thursday that showed U.S. GDP growth fell to a weaker-than-expected 1.8 percent annual rate in the first quarter and jobless claims jumped in the latest week.
"Part of it is the fact that the U.S. recovery is on track, but it's not a strong recovery," said Charles St-Arnaud, Canadian economist and currency strategist at Nomura Securities International in New York.
At 10:06 a.m. (1406 GMT), the Canadian dollar CAD=D4 stood at C$0.9486 to the U.S. dollar, or $1.0542, strengthening from Wednesday's North American finish at C$0.9504 the U.S. dollar. Earlier, it hit C$0.9465, or $1.0565, it's strongest level since April 21, when the currency reached a 3-1/2 year high.
Analysts noted the Canadian dollar has underperformed other commodity-linked currencies, but is still expected it to remain firm against a soft U.S. dollar.
"We expect to see new lows in USD/CAD as loose monetary policy in the U.S., soon to be tighter policy in Canada, strong Canadian fundamentals, a relatively better Canadian fiscal position, investor sentiment and strong commodity prices all weigh," Camilla Sutton, chief currency strategist at Scotia Capital wrote in a note.
The Canadian dollar is still facing the headwind of uncertainty over the May 2 federal election, with support for the left-leaning New Democrats unexpectedly surging.
A poll on Wednesday showed support for the second place NDP topping 30 percent and closing in on the Conservatives' lead. [ID:nN28228823]
Analysts warned big gains for the party could trigger a knee-jerk drop in the currency and Canadian equity markets as investors fret about NDP plans to raise corporate taxes, spend more and redo energy policy. [ID:nN27126329]
While the NDP are perceived to be less business-friendly, St-Arnaud noted its programs are not vastly different and suggested the party's popularity in Quebec over the separatist Bloc Quebecois could also be seen as a positive for international investors wary of another referendum.
"The election talk is creating noise more than anything else," said St-Arnaud.
He also noted interest rate differentials between Canada and the United States will continue to be supportive.
The U.S. central bank is lagging other countries in tightening its monetary policy. The Bank of Canada is widely expected to resume raising interest rates as early as this summer. [CA/POLL]
Higher interest rates often support currencies because they tend to attract international capital flows.
Canadian bond prices rose across the curve, mimicking U.S. Treasuries following the tepid U.S. GDP data. [US/]
The two-year bond CA2YT=RR was up 5.5 Canadian cents to yield 1.748 percent, while the 10-year bond CA10YT=RR gained 26 Canadian cents to yield 3.242 percent. (Editing by Jeffrey Hodgson)
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