* Q1 GDP growth beats expectations, BOC forecast
* C$ hits strongest level in two years vs Aussie
* Bond prices rise across the curve
By Alastair Sharp
TORONTO, May 31 (Reuters) - The Canadian dollar erased losses against the U.S. dollar early on Friday after data showed the country’s economy grew at a faster-than-expected pace in the first quarter.
Stronger exports helped rouse the Canadian economy from its sluggish end to 2012, with annualized economic growth of 2.5 percent exceeding the median projection of analysts in a Reuters poll and easily beating the central bank’s lowered forecast.
“It’s mildly supportive for the currency, we had some slightly disappointing numbers out of the U.S. as well at the same time as slightly better-than-expected numbers on the Canadian side, so it was a good combination for the Canadian dollar,” said BMO Capital Markets Chief Economist Doug Porter.
U.S. consumer spending fell in April for the first time in almost a year and inflation pressures were subdued in the world’s largest economy and Canada’s main trading partner.
The rise in the loonie, as Canada’s currency is colloquially known, was more pronounced against other commodity-linked peers, hitting its strongest level against the Australian dollar in more than two years.
It has had a rough time this month, falling more than 2 percent as traders assume Canada’s economy would lag its southern neighbor’s growth and as expectations grew for a slowdown in the U.S. Federal Reserve’s monetary stimulus efforts.
“I would point out that, surprisingly the Canadian economy did grow faster than the U.S. economy in the first quarter, which I don’t believe too many people were calling for at the start of the year,” BMO’s Porter said.
At 9:08 a.m. EDT (1308 GMT) the Canadian dollar was trading at C$1.0307 to the greenback, or 97.02 U.S. cents, compared with C$1.0333 just before the gross domestic product data and C$1.0300 at Thursday’s North American close.
Prices for Canadian government debt rose across the curve. The two-year bond was up half a Canadian cent to yield 1.075 percent, while the benchmark 10-year bond rose 9 Canadian cents to yield 2.057 percent.