* Canadian dollar at C$1.0859 or 92.09 U.S. cents
* Bond yields drop, 10-year at more than 1-year low
(Adds details, quotes, updates prices)
By Leah Schnurr
TORONTO, July 29 (Reuters) - The Canadian dollar weakened
against the greenback to touch its lowest level in nearly six
weeks on Tuesday, caught by a wave of support for the U.S.
dollar that was spurred by optimism that U.S. economic data due
later in the week will come in strong.
The loonie's drop picked up speed after it fell through its
200-day moving average at C$1.0835, marking another leg lower
after a sharp drop at the end of last week.
While Canada has a busy economic calendar this week, with
May economic growth and June producer prices on tap, the
market's main focus will be on the slew of U.S. data. It
includes July's unemployment report and a first look at
second-quarter economic growth, while a two-day Federal Reserve
meeting got underway on Tuesday.
Tuesday's U.S. dollar strength put pressure on the long
Canadian dollar positions that investors had accumulated as the
loonie rose through May and June, said Shaun Osborne, chief
currency strategist at TD Securities in Toronto.
"As we traded below the 200-day moving average for the
Canadian dollar today, that was the cue for the long position
holders to essentially liquidate those positions," he said.
The Canadian dollar ended the North American
session at C$1.0859 to the greenback, or 92.09 U.S. cents,
weaker than Monday's close of C$1.0800, or 92.59 U.S. cents.
The loonie hit a session low of C$1.0866, its lowest level
since mid June.
It was the loonie's second significant decline in the last
three sessions following a selloff on Friday that broke the
currency out of the range it had traded in for two weeks.
Osborne said the Canadian dollar is well on course to hit
C$1.09, and it could see C$1.10 over the next few weeks if U.S.
data continues to support the greenback.
While Thursday's Canadian gross domestic product report for
May could trigger a rally in the loonie if it shows a pickup in
growth, it probably won't do much to change the trend of a
weaker Canadian dollar, Osborne said.
Canadian government bond yields were lower across the
maturity curve, mirroring a drop in U.S. Treasuries yields. The
yield on the benchmark Canadian 10-year fell to
2.091 percent, a more than one-year low.
The two-year was up 1 Canadian cent to yield
1.081 percent.
(Editing by Peter Galloway)