TORONTO: The Canadian dollar strengthened against the greenback on Monday at the start of what was expected to be a quiet week of trading as data showed the domestic economy was stronger than expected in October.
The loonie entered the day on firmer footing and held on to gains after gross domestic product data showed the Canadian economy expanded for a fourth month in October, by 0.3 percent, beating analysts' expectations for 0.2 percent growth.
"Economically, it's a good sign for the fourth quarter," said Greg Moore, FX strategist at TD Securities in Toronto. "According to our economists, it suggests the fourth quarter could be a little bit stronger than the Bank of Canada was expecting."
The central bank has forecast annualized GDP growth of 2.3 percent in the fourth quarter.
Still, the data was unlikely to change the Bank of Canada's monetary policy after last week's weak inflation report, said Moore.
The Canadian dollar ended the North American session at C$1.0611 to the greenback, or 94.24 US cents, stronger than Friday's close of C$1.0648, or 93.91 US cents.
Trading was expected to be muted ahead of the Christmas holiday later in the week.
At the end of October, the Bank of Canada dropped its rate-tightening bias, shifting to a more neutral stance and leading market participants to delay their expectations for when interest rates will go up.
The policy shift has weighed on the Canadian dollar, along with weaker commodity prices and a US Federal Reserve that last week started to wind down its economic stimulus program.
"It's been a one-way trade against the Canadian dollar for the last two months. As the year winds down, it's a great time for a bounce," said Adam Button, currency analyst at ForexLive.
"It probably won't extend a great deal from here, but, all other things being equal, there's a little bit more room for the Canadian dollar to run."
Markets appeared to shrug off a cash market squeeze in China. The country's central bank said it has injected 300 billion yuan ($49.41 billion) via short-term liquidity operations into the interbank market on Friday in response to rising rates, though it appeared to be trying to force banks to curb risky lending practices in the shadow banking system.
Canadian government bond prices were mostly lower across the maturity curve, with the two-year down 4-1/2 Canadian cents to yield 1.129 percent and the benchmark 10-year down 5 Canadian cents to yield 2.682 percent. December 24, 2013
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