TORONTO: The Canadian dollar firmed modestly against the greenback on Monday, consolidating after recent declines, but a lack of domestic data this week kept the currency in a narrow trading range.
Still, the loonie was able to shrug off early weakness that was spurred by news that manufacturing activity in China contracted in the first quarter.
An index of manufacturing in China fell to an eight-month low in March. The index has shown contraction since January amid a string of other weak economic indicators from China this year.
But markets shrugged off the data on speculation that the weakness may prompt China's central bank to opt for further stimulus measures. The Canadian dollar is sensitive to economic developments in China, which is a major consumer of natural resources.
"Trading today has been very listless. We've really been bouncing around just above C$1.12 and just below C$1.12," said Scott Smith, senior market analyst at Cambridge Mercantile Group in Calgary.
The Canadian dollar ended the North American session at C$1.1195 to the greenback, or 89.33 US cents, slightly stronger than Friday's close of C$1.1210, or 89.21 US cents.
More dovish-than-expected comments from Bank of Canada Governor Stephen Poloz hit the Canadian dollar last week in combination with US Federal Reserve musings about a potentially faster timetable for eventually raising interest rates. The force of the two factors pushed the loonie to a 4-1/2 year low.
With no major Canadian economic data on the calendar this week, investors will focus on bigger-picture themes, as well as US data, said Don Mikolich, executive director of foreign exchange sales at CIBC World Markets in Toronto.
He added that while the C$1.1250 to C$1.13 area will be the next psychologically important level to watch for, there may not be any domestic factors this week that would push the loonie to those lows.
US data on the docket this week include a number of reports on the housing sector, as well as the final reading for fourth-quarter growth.
"The American data will give us an indication on the length of time between when quantitative easing winds down and when short-term rates start to rise," Smith said.
If the data comes in more robust than expected, that will likely drive the US dollar higher to the detriment of the loonie, he said.
Canadian government bond prices were mostly higher across the maturity curve, though the two-year was off 0.2 Canadian cent to yield 1.073 percent. The benchmark 10-year was up 28 Canadian cents to yield 2.455 percent.
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