CANADA FX DEBT-C$ weakens as caution offsets current account data

Reuters

* Canadian dollar at C$1.1136 or 89.80 U.S. cents * Bond prices higher across the maturity curve By Leah Schnurr TORONTO, Feb 27 (Reuters) - The Canadian dollar was slightly weaker against the greenback on Thursday as caution over political tensions in Ukraine offset data showing the domestic current account deficit widened less than expected.

Investors were also positioning ahead of a report on Canada's economic growth due on Friday. Fourth-quarter gross domestic product is expected to show growth slipped to a 2.5 percent annualized rate, though economists expect some of the quarter may have been affected by harsh winter weather.

Markets were wary after armed men seized regional government headquarters and parliament in Ukraine's Crimea and raised the Russian flag.

Crimea, the only Ukrainian region with an ethnic Russian majority, is the last big bastion of opposition to the new leadership in Ukraine, after the ouster of the country's president last weekend.

The developments put investors on edge and gave the loonie a negative tone as it was hurt by the lack of risk appetite.

"If you look at the sentiment in the market, it's trading in a bit of a risk-off mood, so there's some scope for the Canadian dollar to get dragged along with that," said Mazen Issa, macro strategist at TD Securities in Toronto.

The currency came off its session lows after data showed Canada's current account deficit was not as large in the fourth quarter as analysts had expected, while previous deficits were revised lower.

Still, the gap of $16.01 billion ($14.42 billion) in the final months of last year was the fourth-largest ever, and the Canadian dollar remained in a tight range.

"That narrative of weakness in net exports still persists, so that doesn't really change the implications for fourth-quarter gross domestic product tomorrow. We're still expecting to see a net export drag in tomorrow's report," said Issa.

The Canadian dollar ended the North American session at C$1.1136 to the greenback, or 89.80 U.S. cents, a touch weaker than Wednesday's close of C$1.1128, or 89.86 U.S. cents.

"The loonie is pretty much settled into its recent trading range, it seems pretty comfortable where it is," said Rahim Madhavji, president at KnightsbridgeFX.com in Toronto.

The currency is likely to be in a short-term range of C$1.10 to C$1.13, said Madhavji.

"I really don't see it breaking out of that, regardless of what happens with the economic data that comes tomorrow, unless it is a sharp surprise somewhere. We'll need to see a couple months of data before we start to form a trend." In testimony before U.S. lawmakers, Federal Reserve Chair Janet Yellen said the weather appears to be behind recent signs of weakness in the U.S. economy, suggesting the central bank was poised to continue reducing its stimulus program.

Canadian government bond prices were up across the maturity curve, with the two-year up half 3 Canadian cents to yield 0.989 percent and the benchmark 10-year up 35 Canadian cents to yield 2.408 percent.

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