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Canada dollar ends higher, data takes backseat

TORONTO: The Canadian dollar made strong gains on Friday, mostly driven by flow trading and largely ignoring stronger-than-expected January gross domestic product figures.

"Really the economic data has taken a backseat. We're totally driven by the flows. It's a continuation on of what we saw yesterday. We haven't really bounced much all day," said a currency trader at a major Canadian bank. "I'm not sure we are going to see Canada continue to run like we did in the last six trading days," he added.

The Canadian dollar was at C$1.4494 (68.99 US cents) on Friday versus C$1.4553 (68.71 US cents) at the previous session's close.

Stronger-than-expected January gross domestic product figures released on Friday failed to move the Canadian currency. The Canadian economy grew by an unexpectedly high 0.5 percent in January from December. The rise in GDP exceeded analysts' expectations of a 0.3 percent climb after December's 0.4 percent climb. It was the 18th consecutive monthly increase.

"The GDP numbers were positive this morning. That continues to point to good things in Canada overall, but I still don't think we're really on our way anywhere too far, too fast," said the trader.

The Canadian dollar has ignored recent economic data despite consistent stronger-than-expected figures. Nonetheless, employment numbers for both Canada and the United States, to be released next Friday, may be a factor in what the currency will do next week.

"Unless we get a really shocking number for unemployment on Friday, I don't think we'll waver too much from the fact that rates are going up still and we are in a range and it's not necessarily about the data," said the trader.

Market watchers believe fundamentals are in place and this will help the Canadian dollar appreciate. The possibility of a Bank of Canada rate hike is cause for concern for some market players.

"I think that the fundamentals, even with the recent retracement in oil, suggest that the Canadian dollar should continue to strengthen in going forward," said Aron Gampel, senior economist at Scotia Capital Markets.

The Canadian dollar was hurt a bit in late January when Bank of Canada Governor Gordon Thiessen said it was not necessarily going to follow the next US Federal Reserve interest rate hike, but the market is comfortable now, said the trader.

"I think it got some people thinking and probably put some nervousness in some Canada and since then, we have seen a lot of people bail out of the long Canada positions," said the trader.

"But the question is are we going to go again after that? The next one has the markets completely discounted the fact that we will match the next Fed hike," said the trader.

"I think it's much more of a gradual tightening of policy and on that basis, I would still say they will lag the Fed which is not a supportive factor for the currency to unfold," said Gampel.

Analysts note that the Canadian dollar has not seen tremendous repatriation flows back to the US, even with some stocks sliding.

In cross-trading against major currencies, the Canadian dollar was at 70.84 yen compared with 72.39 yen at the previous session's close and at C$1.3843 against the euro versus C$1.3976. The Canadian dollar was at A$1.1343 against the Australian dollar versus A$1.1198. -Reutersd