Canada dollar firms after rebound in monthly GDP

Reuters
Canadian one hundred dollar bills are displayed in Toronto
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Canadian one hundred dollar bills are displayed in Toronto, October 22, 2008. REUTERS/Mark Blinch

By Leah Schnurr

TORONTO (Reuters) - The Canadian dollar strengthened against the greenback on Monday, boosted by data that showed the country's economy rebounded at a faster-than-expected pace in January.

Canadian gross domestic product showed growth of 0.5 percent in January, bouncing back from a decline of 0.5 percent in December as the economy was hampered by unusually harsh winter weather.

The loonie had been on a strong footing heading into the report and it touched a session high shortly after the data was released.

While there were some good underlying factors in the data, the move was likely a knee-jerk reaction from investors who have been bearish over Canadian economic data, said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.

"It essentially erases the decline we saw in December, so looking forward, it's not a huge surprise or really changes anything too much in the fundamental backdrop for the Canadian economy," said Smith.

The Canadian dollar was at C$1.1021 to the greenback, or 90.74 U.S. cents, stronger than Friday's close of C$1.1060, or 90.42 U.S. cents. The loonie earlier touched a session high of C$1.1002.

The currency traded strongly higher last week as it rebounded from a recent 4-1/2-year low. Still, many analysts believe that a number of factors, including a sluggish economy and dovish Bank of Canada, are likely to exert pressure on the loonie.

The U.S. dollar depreciated by 1.4 percent against the Canadian dollar last week, driving it to a 3-week high Friday.

"I think where we are now, we're pretty strong and the loonie is going to have a tough time going much higher from here," said Smith.

The C$1.10 level should offer good support for the U.S. dollar-Canadian dollar pairing, while the 50-day moving average around C$1.1085 should act as a cap for the session, said Smith.

Canadian government bond prices were lower across the maturity curve, with the two-year off 4-1/2 Canadian cents to yield 1.098 percent and the benchmark 10-year down 49 Canadian cents to yield 2.502 percent.

(Editing by Bernadette Baum)

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