TORONTO (Reuters) - The Canadian dollar retreated against the U.S. dollar on Tuesday, reversing earlier gains, after a deep contraction in September gross domestic product provided a weak hand off to the fourth quarter, although impacted by a large one-time factor.
Gross domestic product increased at an annualized 2.3 percent rate in the third quarter, slightly below expectations for a 2.4 percent pace, but economic activity in September declined by a worse-than-expected 0.5 percent.
“The big disappointment was the September figures,” said Nick Exarhos, economist at CIBC Capital Markets.
He added that it was mostly due to “a drop in mining, oil and gas which was driven by disruption at a major oil sands facility out west and most of that production came back online in October.”
The data is not expected to impact the Bank of Canada rate decision on Wednesday.
At 9:21 a.m. EST (1421 GMT), the Canadian dollar CAD=D4 was trading at C$1.3360 to the greenback, or 74.85 U.S. cents, slightly weaker than the Bank of Canada’s official close of C$1.3353, or 74.89 U.S. cents.
The currency’s strongest level of the session was C$1.3310, while its weakest level was C$1.3398.
The Canadian dollar firmed ahead of the data after a private survey revealed improvement that China’s factory activity contracted at a slower pace in October, supporting sentiment for commodity currencies.
Canadian government bond prices were higher across the maturity curve, with the two-year CA2YT=RR price up 2.5 Canadian cents to yield 0.619 percent and the benchmark 10-year CA10YT=RR rising 13 Canadian cents to yield 1.555 percent.
The Canada-U.S. two-year bond spread was 2 basis points wider at -32.3 basis points, while the 10-year spread was 1 basis point wider at -65.8 basis points, as Canadian government bonds outperformed on the GDP data.
U.S. crude CLc1 prices were down 0.14 percent to $41.59 a barrel, while Brent crude LCOc1 lost 0.54 percent to $44.37.[O/R]
Reporting by Fergal Smith; Editing by Nick Zieminski