CANADA FX DEBT-C$ falls as GDP data disappoints, bonds up

Fri Oct 30, 2009 4:47pm EDT
 
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 * C$ finishes at C$1.0819 per US$
 * August GDP down, Bank of Canada forecast in doubt
 * Currency drops 2.8 pct for the week
 * Bond prices higher across the curve
 (Adds details, quote)
 TORONTO, Oct 30 (Reuters) - Canada's dollar was lower
against the U.S. currency on Friday after news that Canada's
gross domestic product shrank in August, putting in doubt the
Bank of Canada's forecast for third-quarter growth.
 GDP contracted by 0.1 percent in August from July. Analysts
polled by Reuters had expected a 0.1 percent increase from
July, when there was no growth. For more see [ID:nN30211427].
 "It's taking a hit," Sal Guatieri, senior economist at BMO
Capital Markets, said of the Canadian dollar.
 "A disappointing GDP report, which at the least suggests
our economy has very little forward momentum," he added. "I
think we'll see continued choppiness in both the data and the
currency as the market tries to figure out whether the economic
recovery is sustainable and how strong it will be."
 After the report, the Canadian currency CAD= fell as low
as C$1.0839 to the U.S. dollar, or 92.26 U.S. cents.
 It finished the day at C$1.0819 to the U.S. dollar, or
92.43 U.S. cents, down from C$1.0670 to the U.S. dollar, or
93.72 U.S. cents, at Thursday's close.
 The currency is down 2.8 percent on the week and fell 1
percent in October.
 The GDP report cast doubt on whether the country climbed
out of recession in the third quarter and made the Bank of
Canada's growth projections all but impossible to reach.
 "This kind of GDP print is tracking well below the Bank of
Canada's expectations for the start of the recovery," said
Derek Holt, economist at Scotia Capital.
 The central bank has forecast annualized growth of 2.0
percent in the third quarter.
 "After (GDP) being flat in July and down in August they're
going to need a record-breaking number in September to come
even close," Holt said.
 In a weekly report, Doug Porter, deputy chief economist at
BMO Capital Markets, noted that the Canadian dollar/U.S. dollar
exchange rate has swung 25 percent to 30 percent in a span of a
year.
 "Perhaps concentrating on stabilizing the loonie, through
whatever means necessary, should be higher up the bank's
priority list," he wrote.
 Weak equity and commodity markets also hurt the currency on
Friday, said Brendan McGrath, senior foreign exchange trader at
Custom House. "Another bout of risk aversion has come back into
the market," he said.
 North American stock markets slid on Friday, a day after
logging hearty gains, as concerns about the economic outlook
fueled safe-haven bids. [.N] [.TO]
 BOND PRICES HIGHER
 Canadian bond prices were higher across the curve following
the Canadian GDP data, but lagged the rise in the bigger U.S.
Treasury market. [US/]
 The two-year bond CA2YT=RR rose 17 Canadian cents to
C$99.72 to yield 1.387 percent, while the 10-year bond
CA10YT=RR climbed 55 Canadian cents to C$102.55 to yield
3.434 percent.
 Canadian bonds mostly underperformed U.S. Treasuries. The
Canadian 10-year bond was 3.6 basis points above the U.S.
10-year yield, compared with about 0.60 of a basis point above
on Thursday.
 (Reporting by Jennifer Kwan; editing by Peter Galloway)