* Canadian dollar ends at C$1.3399, or 74.63 U.S. cents
* Loonie touches its weakest since Jan. 4 at C$1.3402
* Bond prices lower across the yield curve
* Canada-U.S. 2-year spread hits largest gap since January
By Fergal Smith
TORONTO, March 2 The Canadian dollar weakened on
Thursday to a nearly two-month low against its U.S. counterpart,
shrugging off data that showed solid domestic economic growth as
oil prices fell and the greenback climbed against a basket of
Gains for the U.S. dollar came on increasing signs
from Federal Reserve officials that the U.S. central bank is
seriously considering raising interest rates this month.
"The trend is the friend for the U.S. dollar, so despite the
strong (Canadian) data that came out this morning it has a muted
effect on the outlook for the Canadian dollar," said Rahim
Madhavji, president at Knightsbridge Foreign Exchange.
"The longer term story is the rise in the interest rate
Canada's 2-year yield fell 1.4 basis points further below
its U.S. equivalent to a spread of -54.1 basis points, its
largest gap since January 2016.
The wider gap came one day after the Bank of Canada held
rates steady as it stayed focused on the "significant
uncertainties" facing the economy, including the policies of
U.S. President Donald Trump.
Expectations that Canada's central bank will stay on hold
until 2018 even as the Fed continues to raise interest rates
will pressure the Canadian dollar over the coming months, a
Reuters poll predicted.
"Oil prices aren't really helping the Canadian dollar
either," said Madhavji.
U.S. crude oil futures settled $1.22 lower at $52.61
a barrel after Russian oil production remained unchanged in
February, showing weak compliance with a global deal to curb
Oil is one of Canada's major exports.
The Canadian dollar ended at C$1.3399 to the
greenback, or 74.63 U.S. cents, weaker than Wednesday's close of
C$1.3335, or 74.99 U.S. cents.
The currency's strongest level of the session was C$1.3324,
while it touched its weakest since Jan. 4 at C$1.3402.
The Canadian economy grew at a 2.6 percent annualized rate
in the fourth quarter, lifted by consumer spending and a rebound
in activity in the housing market, while imports tumbled.
Economist polled by Reuters had expected 2 percent growth.
"For the Canadian dollar, we're not seeing a big response
yet, but I think it's fairly clear that this is supportive news
for the currency," said Doug Porter, chief economist at BMO
Canadian government bond prices were lower across the yield
curve, with the two-year down 2.5 Canadian cents to
yield 0.775 percent and the 10-year falling 11
Canadian cents to yield 1.701 percent.
(Additional reporting by Alastair Sharp; Editing by Bernadette
Baum and Sandra Maler)