CANADA FX DEBT-C$ sheds nearly a cent on soft Canadian GDP

Fri Oct 31, 2014 10:03am EDT
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* Canadian dollar at C$1.1286 or 88.61 U.S. cents
    * Bond prices mostly weaker across the maturity curve

    By Solarina Ho
    TORONTO, Oct 31 (Reuters) - The Canadian dollar shed nearly
a cent against its U.S. counterpart on Friday and dropped to its
weakest level in more than a week after data showed the
country's economy unexpectedly shrank in August for the first
time in eight months.
    Real gross domestic product fell 0.1 percent in August, hurt
 by plant maintenance in the oil and gas industry that slowed
production and by a drop in manufacturing activity. 
    "It's just a bit of an additional headwind. It doesn't quite
buy into the narrative that we're hoping to see," said David
Tulk, chief Canada macro strategist at TD Securities, who said
the GDP drop was not too surprising given fairly weak economic
data globally for August.
    "Our expectation is that it will reassert itself in
September and going into the final quarter of the year."
    At 9:21 a.m. (1321 GMT), the Canadian dollar was 
at C$1.1286 to the greenback, or 88.61 U.S. cents, significantly
softer than Thursday's close of C$1.1196, or 89.32 U.S. cents.
    In the United States, consumer spending fell for the first
time in eight months in September, but the slowdown was expected
to be temporary as other data showed the biggest increase in
wages in more than six years in the third quarter.
    "It's sort of a perfect storm, where you get the weakness in
the Canadian economy ... But also on the U.S. side, you have the
employment cost index that was stronger than people had
thought," Tulk said.
    "That gives you your perfect storm, insofar as you see that
potential momentum in wages under the surface in the United
States, which brings the Fed arguably closer to taking rates
    Earlier this week, the U.S. central bank said it was ending
its monthly bond purchase program and adopted a more hawkish
tone on the economy.
    Canadian government bond prices were mostly weaker across
the maturity curve, but the two-year was unchanged
with a yield of 1.038 percent. The benchmark 10-year 
lost 13 Canadian cents to yield 2.062 percent.    

 (Reporting by Solarina Ho; Editing by Peter Galloway)