Yahoo Finance CANADA FX DEBT-Canadian dollar adds to monthly decline despite GDP beat
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Canadian dollar weakens 0.2% against the greenback
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Canadian first-quarter GDP increases 3.1%
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Price of U.S. oil falls 0.6%
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Canada-U.S. 2-year spread narrows by 5 basis points
By Fergal Smith
TORONTO, May 31 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday and was headed for a monthly decline, as lower oil prices offset domestic GDP data that bolstered bets for another interest rate hike by the Bank of Canada.
The loonie was trading 0.2% lower at 1.3620 to the greenback, or 73.42 U.S. cents, after touching its weakest intraday level since Friday at 1.3651. For the month, it was on track to fall 0.5%.
"It fell this morning in sympathy with other commodity currencies on the back of that weaker China data and certainly the knock on effect of much weaker oil prices," said Michael Goshko, senior market analyst at Convera Canada.
China is a major commodity importer. Its manufacturing activity contracted faster than expected in May on weakening demand, while the price of oil, one of Canada's major exports, was down 0.6% at $69.04 a barrel, adding to its sharp decline the day before.
Canada's economy expanded at an annualized rate of 3.1% in the first quarter, faster than expected, and likely accelerated further in April, data showed, increasing the odds for another interest rate hike by the central bank.
"Certainly a beat on GDP and that is moving the needle on rate hike odds for next Wednesday's meeting," Goshko said.
Money markets see a roughly 35% chance that the BoC will hike next week for the first time since January, up from 28% before the data.
Canadian government bond yields were lower across the curve, but the move was much less than for U.S. Treasuries.
The 2-year eased 2 basis points to 4.238%, while the gap between it and the equivalent U.S. rate narrowed by 5 basis points to about 16.5 basis points in favor of the U.S. note. (Reporting by Fergal Smith, editing by Deepa Babington)
