CANADA FX DEBT-C$ ends near flat after GDP data shows contraction

Wed Oct 31, 2012 4:54pm EDT
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* C$ ends at C$0.9990 to US$, or $1.0010
    * Weakened below parity before clawing back
    * Canada GDP data shows 0.1 percent contraction in August
    * Rate rise seen pushed farther out, bond prices rise

    By Andrea Hopkins
    TORONTO, Oct 31 (Reuters) - The Canadian dollar weakened
below parity against the U.S. currency before clawing back to
end little changed on Wednesday after data showed the Canadian
economy contracted unexpectedly in August.
    The currency weakened to a session low shortly after the
gross domestic product data pointed to slower growth in the
third quarter and supported the Bank of Canada's message that
interest rate hikes are not imminent. It later pared those
    "We are pretty much ending unchanged from where we started
the day, but we saw a 50-point range and that's the largest
we've seen in a week," said Dave Bradley, director of foreign
exchange trading at Scotiabank.
    The Canadian dollar ended the North American
session at C$0.9990 to the greenback, or $1.0010, compared with
C$0.9993, or $1.0007, at Tuesday's close.
    Bradley said the market was still suffering from poor
liquidity due to the absence of many U.S. traders recovering
from monster storm Sandy.
    "Despite the U.S. equity markets opening again, a lot of New
York based participants are out of the market ... I think
liquidity and general flow is at a minimum," Bradley said.
    With Oct. 31 marking the end of the financial reporting year
for Canadian banks, Bradley noted the Canadian currency was
virtually unchanged from a year ago within a few basis points of
     Mark Chandler, head of Canadian fixed income and currency 
strategy at Royal Bank of Canada, said the currency could be
weighed down by the August GDP numbers, which showed a 0.1
percent contraction, through to the end of the week.    
    "It'll linger for a little bit, the only thing that could
change the tune on this is we have payrolls," he said. 
    Canada and the United States are set to release monthly
employment data on Friday. 
    U.S. equity markets were mostly flat on Wednesday, opening
for the first time this week after shutting their doors ahead of
Hurricane Sandy. 
    With the GDP data backing up recent Bank of Canada comments
that rate rises are "less imminent", the price of Canadian
government debt turned positive after the data, especially at
the front end of the curve, and outperformed U.S. Treasuries.
    The two-year bond was up 5 Canadian cents to
yield 1.076 percent, while the benchmark 10-year bond
 rose 20 Canadian cents to yield 1.788 percent.
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the data
traders pulled their bets on the possibility of a rate hike in
late 2013.