March 29, 2018 / 9:11 PM / in 7 months

CANADA FX DEBT-C$ firms as stocks rally, NAFTA optimism offset GDP miss

 (Adds strategist quote, details on market activity; updates
prices)
    * Canadian dollar at C$1.2883, or 77.62 U.S. cents
    * Loonie heads for 2.3 percent decline in first quarter
    * Canada's gross domestic product dips 0.1 percent in
January
    * Bond prices higher across the yield curve

    By Fergal Smith
    TORONTO, March 29 (Reuters) - The Canadian dollar rose
against its U.S. counterpart on Thursday as firmer stock prices
and optimism about a North American Free Trade Agreement (NAFTA)
trade deal offset data showing the domestic economy unexpectedly
contracted at the start of the year.
    At 4 p.m. EDT (2000 GMT), the Canadian dollar          was
trading 0.3 percent higher at C$1.2883 to the greenback, or
77.62 U.S. cents. The currency's strongest level of the session
was C$1.2862, while it touched its weakest since Friday at
C$1.2940.
    For the quarter, the loonie was headed for a 2.3 percent
decline, which would be its deepest since the final quarter of
2016.
    The Canadian economy shrank by 0.1 percent in January, short
of analysts' estimates for a 0.1 percent increase, in a clear
sign that first-quarter growth is likely to be weaker than the
Bank of Canada had predicted.             
    "I think the Canadian dollar really hasn't reflected a lot
of the weakness (in the economic data), said Mark Chandler, head
of Canadian fixed income and currency strategy at RBC Capital
Markets. "I think, in part, because it has some favorable push
from NAFTA and getting excluded from the tariff actions."
    U.S. Trade Representative Robert Lighthizer on Wednesday
expressed optimism that talks to modify NAFTA could be wrapped
up quickly, but a top Canadian official was more downbeat,
saying much work remained.             
    Wall Street surged, bringing an upbeat end to a tumultuous,
holiday-shortened week as technology stocks rebounded.
            
    Canada's commodity-linked currency tends be sensitive to
stock market performance due to the signal it sends about the
strength of the global economy.
    The price of oil, one of Canada's major exports, rose as
stocks rallied and as market participants weighed a rise in U.S.
crude inventories and production against continued supply curbs
by major producers.             
    U.S. crude oil futures        settled 1.1 percent higher at
$70.27 a barrel.
    Canadian government bond prices were higher across the yield
curve, with the two-year            up 5.5 Canadian cents to
yield 1.776 percent and the 10-year             rising 24
Canadian cents to yield 2.092 percent.
    The gap between the 2-year yield and its U.S. equivalent
widened by 1.4 basis points to a spread of -49.4 basis points.
    Canada's bond market will be closed on Friday for Good
Friday.

 (Reporting by Fergal Smith; Editing by Richard Chang)
  
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