CANADA FX DEBT-Canadian dollar posts biggest weekly gain since May as GDP surpasses forecasts

By Fergal Smith

TORONTO, Nov 28 (Reuters) - The Canadian dollar strengthened to a four-week high against its U.S. counterpart on Friday after stronger-than-expected quarterly GDP data prompted investors to reduce the amount of additional easing they expected from the Bank of Canada in the current rate cutting campaign.

The loonie CAD= was trading 0.4% higher at 1.3980 per U.S. dollar, or 71.53 U.S. cents, after touching its strongest intraday level since October 30 at 1.3939. For the week, the currency was up 0.9%, putting it on track for its biggest weekly advance since May, while it was headed for a November gain of 0.2%.

The U.S. dollar .DXY has weakened against a basket of major currencies in recent days as investors bet on a December rate cut by the Federal Reserve.

Canada's economy grew at an annualized pace of 2.6% in the third quarter as crude oil exports and government spending boosted economic activity even as business investments and household consumption disappointed. Economists had forecast growth of 0.5%.

Investors priced in an end-point for BoC easing of 2.15% in July next year, up from 2.14% before the data. Last month, the central bank cut its benchmark interest rate to a three-year low of 2.25%. 0#CADIRPR

"A strong GDP report boosted CAD as markets pushed higher expectations of BoC terminal rate," strategists at TD Securities, including Jayati Bharadwaj, said in a note.

"As we have flagged, CAD looks structurally cheap above 1.40 but needs either quick stabilization of economic activity or USMCA extension/trade deal to close its valuation gap."

The United States-Mexico-Canada Agreement, which has shielded much of Canada's exports from U.S. tariffs, is up for joint review in 2026.

The price of oil CLc1, one of Canada's major exports, rose 1.5% to $59.50 a barrel as drawn-out Russia-Ukraine peace talks kept geopolitical risks elevated.

Canadian bond yields moved higher across the curve. The 10-year CA10YT=RR was up 2.1 basis points at 3.150%, after hitting a near three-week low of 3.124% during Thursday's session.