July 29, 2011 / 2:13 PM / in 9 years

CANADA FX DEBT-C$ dives after weak Canada, US GDP data

 * C$ hits 1-1/2 week low of C$0.9590 vs US$, or $1.0428
 * Bond prices extend gains across curve
 * Canada May GDP unexpectedly falls
 * US Q2 GDP rises up less than forecast
 (Updates with details, comments)
 By Claire Sibonney
 TORONTO, July 29 (Reuters) - The Canadian dollar tumbled to
its lowest level in more than a week against the greenback on
Friday morning, while bond prices marched higher after Canadian
and U.S. economic growth data fell below market expectations.
 The currency CAD=D4 fell as low as C$0.9590 versus the
U.S. dollar, or $1.0428, from about C$0.9511, or $1.0514,
immediately before the GDP data was released. It was the lowest
level for the Canadian dollar since July 19.
 Canada's gross domestic product unexpectedly fell by 0.3
percent in May, when the mining, oil and gas sectors battled
bad weather and wildfires. Analysts had projected a 0.1 percent
increase from April. [nN1E76S08I]
 "I think it tends to overstate the weakness in the
headline, but it certainly does speak to a second quarter that
is shaping up to be fairly weak," said David Tulk, chief Canada
macro strategist at TD Securities.
 "We're also really nervous with what happened in the U.S.
in terms of their really weak data print for GDP ... so I think
this just gets painted with the same brush of fairly weak data
as well as increased political risk that causes risk assets to
 The U.S. economy grew at a meager 1.3 percent in the second
and growth for the first quarter was revised sharply lower,
data on Friday showed. [nCAT005481]
  Figures that showed Canadian producer prices fell last
month came in closer to consensus, and were largely ignored,
Tulk said. [nN1E76S08P]
 At 9:33 a.m. (1333 GMT), the Canadian dollar stood at
C$0.9586 to the U.S. dollar, or $1.0432, down from Thursday's
North American close at C$0.9516 to the U.S. dollar, or
 Tulk said the GDP data further reduces the likelihood that
the Bank of Canada will resume its rate-hike campaign in the
fall. A Reuters poll conducted last week showed most of
Canada's primary dealers expect the central bank to raise
interest rates in September or October. [CA/POLL]
  Overnight index swaps -- which trade based on expectations
for the key central bank policy rate -- showed investors paring
back bets on a rate hikes in September, October and December.
 Overall, markets were in a risk-off mood as debt jitters on
both sides of the Atlantic drove edgy investors away from
riskier assets, including global equities. The Canadian dollar
had outperformed other majors going in the data, however, and
has been seen recently as safe haven.
 Canadian bond prices extended early gains, tracking U.S.
Treasuries higher. [US/]
 The two-year Canadian government bond CA2YT=RR rose 14
Canadian cents to yield 1.413 percent. The 10-year bond
CA10YT=RR rallied 54 Canadian cents to yield 2.818 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)

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