CANADA FX DEBT-Canadian dollar heads for monthly gain as economy grows

·2 min read


Canadian dollar weakens 0.1% against the greenback


Touches its strongest since Feb. 21 at 1.3508


Canadian GDP rises 0.5% in January


Canadian bond yields trade mixed across curve

TORONTO, March 31 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, but the currency was holding near its strongest level in more than five weeks as domestic data showed that the economy grew at a faster-than-expected pace at the start of the year.

The Canadian economy expanded by 0.5% in January on a rebound in both goods-producing and services-producing industries. That was stronger than the 0.3% increase economists had expected, while preliminary data for February showed GDP advancing by a further 0.3%.

The Bank of Canada says the economy needs to slow so that inflation can return to its 2% target.

It has raised interest rates at an aggressive pace since March last year but money markets expect that the next move by the central bank will be a cut, after recent turmoil in the global banking sector that could lead to reduced access to credit.

Meanwhile, U.S. data showed consumer spending rose moderately in February, likely payback after surging the prior month, and while inflation showed signs of cooling it remained elevated, which could see the Federal Reserve raising interest rates one more time this year.

The Canadian dollar was trading 0.1% lower at 1.3540 to the greenback, or 73.86 U.S. cents, after touching its strongest since Feb. 21 at 1.3508.

For the month, the currency was on track to gain 0.8%, while it was up 0.1% since the start of the year.

The price of oil, one of Canada's major exports, rose 0.6% to $74.81 a barrel, adding to its recent gains, while Canadian government bond yields were mixed across a flatter curve.

The 2-year bond rose 2.6 basis points to 3.799%, clawing back some of this month's decline. Since the end of February it has fallen about 41 basis points. (Reporting by Fergal Smith Editing by Frances Kerry)