May 28, 2020 / 2:48 PM / a month ago

Canadian dollar lags G10 currencies as investors dread GDP data

TORONTO (Reuters) - The Canadian dollar was the only G10 currency to lose ground against the greenback on Thursday as data showed a widening in Canada’s current account deficit and ahead of data that was expected to show a slump in Canada’s economy.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

The loonie was trading 0.2% lower at 1.3779 to the greenback, or 72.57 U.S. cents. Still, the currency has rebounded more than 6% since hitting a four-year low in March.

“It has come a long way,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. “A lot of people were perplexed by the strength up to this point.”

Some of the cause of the loonie’s underperformance on Thursday was due to a wider-than-expected current account deficit, Chandler added.

The current account deficit widened to C$11.1 billion in the first quarter from a revised C$9.3 billion in the fourth quarter, on a higher trade in goods and services deficit, Statistics Canada said.

A wider current account deficit could leave the loonie more sensitive to moves in the global flow of capital.

Data on first-quarter and March GDP are due on Friday. Economists expect that Canada’s economy contracted by an annualized rate of 10% in the first quarter, while an even deeper slump is anticipated in the second quarter after businesses across the country were closed to help contain the spread of the coronavirus pandemic.

“I do believe there may be some trepidation about GDP,” Chandler said. He expects second-quarter GDP to shrink at an annualized rate of 40%.

The price of oil, one of Canada’s major exports, erased earlier losses on signs U.S. gasoline demand is rising. U.S. crude oil futures settled 2.7% higher at $33.71 a barrel.

Canadian government bond yields rose across the curve, with the 10-year up 1.9 basis points at 0.567%.

Reporting by Fergal Smith; Editing by Andrea Ricci

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