CANADA FX DEBT-C$ falls on weak domestic GDP data

Tue Nov 30, 2010 9:27am EST
 
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 * C$ slips to low of 97.22 U.S. cents
 * Canada growth below forecasts, rates likely on hold
 * Bonds track U.S. Treasuries higher in safe haven bid
 (Adds details, quote)
 By Jennifer Kwan
 TORONTO, Nov 30 (Reuters) - The Canadian dollar touched a
session low on Tuesday morning after domestic data showed the
economy shrank in September, while the third quarter growth
rate was weaker than market forecasts.
  Gross domestic product growth slowed to a 1.0 percent
annual rate in the July-September period because of declining
exports and a housing downturn, while the economy contracted
0.1 percent month-over-month in September. [ID:nSCLUME67I]
 The quarterly report was "clearly a disappointment," but
the most "disappointing aspect" of the data was the outright
decline in September GDP, said Doug Porter, deputy chief
economist at BMO Capital Markets.
 "That puts the fourth quarter on a very soft footing and
suggests that growth will struggle to do much better than what
we've seen in the last couple of quarters," he said.
 The median forecast of analysts in a Reuters poll was for
1.4 percent annualized growth in the quarter and September GDP
growth of 0.1 percent.
 The data helped send the Canadian dollar CAD=D4 to a
session low of C$1.0286 to the U.S. dollar, or 97.22 U.S.
cents, down nearly a cent from C$1.0186 to the U.S. dollar, or
98.17 U.S. cents, at Monday's close.
 At 9:07 a.m. (1407 GMT), the currency stood at C$1.0274 to
the greenback, or 97.33 U.S. cents.
 "The currency was on a bit of a weak footing even prior to
the result because of ongoing concerns about Europe, but this
has just compounded the weakness in the currency," said
Porter.
 The currency's usual risk barometers, as measured by the
price of crude and equity market futures, were lower as
uneasiness surrounding euro zone debt problems also remained.
[MKTS/GLOB]
 The weak GDP could prompt the Bank of Canada to keep its
benchmark interest rate on hold longer than previously
thought.
 Market pricing already suggests that the central bank is
unlikely to change interest rates next week.
 According to a Reuters calculation of yields on overnight
index swaps, which reflect expectations for the policy rate,
there is nearly 100 percent likelihood that the bank will stand
pat. BOCWATCH
 BONDS HIGHER
 Domestic government bonds, which had been higher in a
flight-to-safety bid tracking U.S. Treasuries, rose further
after the Canadian GDP data.
 The two-year government of Canada bond CA2YT=RR was up 12
Canadian cents to yield 1.597 percent, while the 10-year bond
CA10YT=RR rose 30 Canadian cents to yield 3.048 percent.
 (Reporting by Jennifer Kwan; Editing by W Simon )