August 30, 2019 / 1:47 PM / 22 days ago

CANADA FX DEBT-C$ strengthens as economy expands faster than expected

    * Canadian dollar rises 0.2% against the greenback
    * Canada's Q2 GDP rises by 3.7% annualized
    * Loonie is on track to fall 0.5% in August
    * Canadian bond prices fall across the yield curve

    By Fergal Smith
    TORONTO, Aug 30 (Reuters) - The Canadian dollar strengthened
against its U.S. counterpart on Friday after data showing
stronger-than-expected GDP growth, but analysts doubted the Bank
of Canada would become more optimistic about the economy's
outlook at next week's policy announcement.    
    The Canadian economy expanded at a surprisingly strong
annualized rate of 3.7% in the second quarter, a pace much
higher than the Bank of Canada had predicted, thanks to a
resurgence in goods exports, although business investment
declined and growth in consumer spending slowed, Statistics
Canada data indicated.
    "The Bank of Canada was, I think, always going to be
downplaying any economic strength we saw in this report," said
Andrew Kelvin, chief Canada strategist at TD Securities. "The
fact that we are seeing these cracks in business investment and
household spending makes it that much easier for them to do so."
    Whether the Bank of Canada waits until early 2020 to lower
interest rates or does so this year has left economists polled
by Reuters almost evenly divided, but they say the likelihood of
a cut by year-end has increased dramatically from last month.
            
    The central bank is expected to leave its benchmark interest
rate on hold at 1.75% at the Sept. 4 policy announcement.
Chances of a cut by October eased only slightly to 63% from 70%
before the latest data, the overnight index swaps market
indicated.           
    At 9:16 a.m. (1316 GMT), the Canadian dollar          was
trading 0.2% higher at 1.3257 to the greenback, or 75.43 U.S.
cents. The currency, which was on track to fall 0.5% for the
month, traded in a range of 1.3247 to 1.3311.
    Meanwhile, the price of oil, one of Canada's major exports,
gave back some of its recent gains, but was still headed for the
biggest weekly increase since early July, boosted by an easing
of China-U.S. trade rhetoric, a decline in U.S stockpiles and a
looming hurricane in Florida.             
    U.S. crude        oil futures fell 0.4% to $56.50 a barrel.
    Canadian government bond prices were lower across the yield
curve, with the two-year            down 2.5 Canadian cents to
yield 1.361% and the 10-year             falling 5 Canadian
cents to yield 1.154%.
    Earlier this month, the 10-year yield hit its lowest level
since October 2016 at 1.083%.

 (Reporting by Fergal Smith; editing by Jonathan Oatis)
  
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