CANADA FX DEBT-C$ strengthens on better-than-expected GDP growth

Reuters

* C$ at C$1.0427 vs US$, or 95.90 U.S. cents

* Canadian GDP grows by 0.3 pct in August

* Canadian bond prices flat to higher

By Andrea Hopkins

TORONTO, Oct 31 (Reuters) - The Canadian dollar ended

stronger against the U.S. currency on Thursday, rebounding from

a seven-week low as data showed the domestic economy grew at a

slightly better-than-expected pace in August.

The oil and gas industry helped the Canadian economy grow by

0.3 percent in August, topping economists' expectations for a

0.2 percent rise.

The firm data on economic growth pushed the Canadian dollar

higher even as the greenback strengthened against other major

currencies.

"It's been kind of an interesting move, because not only is

CAD stronger, it's stronger on a day when the euro is materially

weaker, which just speaks to the domestic nature of the strength

today," said Camilla Sutton, chief currency strategist at

Scotiabank.

"A stronger-than-expected Canadian GDP report saw CAD

retrace some of the losses it had suffered earlier in the week."

The Canadian dollar ended the North American

session at C$1.0427 versus the greenback, or 95.90 U.S. cents,

well above Wednesday's close of C$1.0484, or 95.38 U.S. cents.

Sutton said upside was likely limited, however, as the focus

remains on the strong U.S. dollar amid expectations of diverging

policy paths by the U.S. and European central banks.

"Tomorrow marks the first day of a new month and I suspect

that the general theme of a stronger U.S. dollar is likely the

one. I suspect CAD will be range-bound, and it is unlikely to

make significant further gains tomorrow. We have support at the

100-day moving average, C$1.0381," she said.

Investor focus remains on global central banks. Market

expectations that the Fed would continue its $85 billion a month

bond-buying program well into next year were not fully met

Wednesday at the end of a Fed meeting, and some now see a chance

for the Fed to begin a wind-down in December.

The current pace of purchases has pressured the dollar and

driven Treasury yields lower, while boosting equities and some

commodities. Those trends were partially reversing on Thursday.

In the euro zone, by contrast, inflation dropped to its

lowest in nearly four years and raised speculation the European

Central Bank will further ease monetary policy. The euro fell on

the inflation data, and the greenback extended gains.

A shift in policy by the Bank of Canada last week had

knocked the Canadian currency lower in recent sessions after the

central bank dropped its rate-hike bias, pushing analysts'

expectations for an eventual increase in interest rates further

out into the future.

Canadian government bond prices were flat to higher across

the maturity curve. The two-year bond was flat and

yielding 1.102 percent, and the benchmark 10-year bond

added 3 Canadian cents to yield 2.420 percent.

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