August 30, 2019 / 7:13 PM / a month ago

CANADA FX DEBT-C$ extends August's decline as boost fades from GDP gain

 (Adds strategist quotes and details throughout, updates prices)
    * Canadian dollar falls 0.3% against the greenback
    * Canada's Q2 GDP rises by 3.7% annualized
    * Loonie declines 1% in August
    * Canadian bond prices fall across a steeper yield curve

    By Fergal Smith
    TORONTO, Aug 30 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday, giving up gains it made
after data showing stronger-than-expected GDP growth for the
second quarter, as oil prices fell and the greenback broadly
rallied.        
    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 guts of the GDP report weren't as constructive as the
initial headline appeared," said Bipan Rai, North America head
of FX Strategy at CIBC Capital Markets. "We are getting some
(U.S.) dollar strength as well across the board. That might have
been flow driven given that this is month-end."
    The U.S. dollar        climbed against a basket of major
currencies as the euro slumped to its weakest since May 2017.
             
    Meanwhile, the price of oil, one of Canada's major exports,
fell ahead of a hurricane near the Florida coast that could
dampen demand. U.S. crude oil futures        settled 2.8% lower
at $55.10 a barrel.
    At 2:34 PM EDT (1834 GMT), the Canadian dollar          was
trading 0.3% lower at 1.3325 to the greenback, or 75.05 U.S.
cents. The currency, which was down 1% for the month, traded in
a range of 1.3247 to 1.3328.
    Friday's decline for the loonie came ahead of a Bank of
Canada policy announcement on Sept. 4.
    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.
            
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year            down 1 Canadian cent
to yield 1.353% and the 10-year             falling 15 Canadian
cents to yield 1.164%.
    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 and
Andrea Ricci)
  
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