06/28/2013 08:54 EDT | Updated 08/28/2013 05:12 EDT

Loonie falls as economy grows by 0.1 per cent in April, U.S bond yields rise

TORONTO - The Canadian dollar was lower Friday amid new figures that showed that the economy grew modestly during April.

The loonie fell 0.39 of a cent to 95.08 cents US as Statistics Canada reported that gross domestic product grew by 0.1 per cent, in line with expectations.

Year-over-year, the Canadian economy grew at an annualized rate of 1.4 per cent — slightly below the Bank of Canada's most recent estimate for the full year and well short of some private sector estimates for 2013 growth.

Most commentaries expect Canadian economic growth will pick up in the second half of the year, but the loonie, gold and base metal prices have retreated as the U.S. dollar has strengthened along with the American economy.

The U.S. dollar and bond yields have also headed higher amid speculation the U.S. Federal Reserve could be close to starting to wind up one of its key stimulus measures, the purchase of US$85 billion of bonds every month.

Fed chairman Ben Bernanke indicated June 19 that the central bank could start tapering its bond purchases and the Canadian currency has been volatile ever since, sinking as low as 94.75 cents US earlier this week, its lowest level since October 2011.

But since then, a level of calm has settled on markets due to solid U.S. economic data and a seeming attempt by the U.S. Federal Reserve to ease investor concerns over the pace of any reduction in its monetary stimulus. The so-called tapering of the purchases raised fears because the stimulus has also been one of the drivers for stocks over recent years.

The yield of the benchmark 10-year Treasury has surged from 2.25 per cent before Bernanke's comments to as high as around 2.6 per cent. But yields started to back off Thursday after three Fed officials said markets were unrealistic in their anticipation of rate hikes down the road.

Jerome Powell, a member of the Fed board in Washington, said the spike in bond yields over the past month is "larger" than would be justified by any "reasonable reassessment" of the path of Fed policy. On Friday afternoon, the 10-year bond yielded 2.5 per cent.

Commodity prices were mixed with the August crude contract on the New York Mercantile Exchange down 49 cents to US$96.56 a barrel.

September copper was unchanged at US$3.06 a pound.

And the August bullion contract on the Nymex shed early losses to climb $12.10 to US$1,223.70 an ounce. Gold prices have deteriorated steadily this year as the precious metal loses its appeal as a hedge against inflation and deteriorating currencies, falling to three-year lows.