TORONTO: The Canadian dollar weakened modestly against the greenback on Friday as heightened tensions in Ukraine made investors cautious and kept the currency stuck in its recent trading range.
The United States said it was prepared to impose further targeted sanctions on Russia over its actions in Ukraine, where armed pro-Moscow separatists seized a bus carrying international mediators.
The crisis in the region has spurred an ebb and flow of risk aversion in markets in recent months.
"The general theme today is there has been a bit of a risk-off move across most asset classes," said Mazen Issa, senior Canada macro strategist at TD Securities in Toronto.
"It seems without a significant response from the political powers, that the situation (in Ukraine) could deteriorate further. I think that's what some of the concern is from a markets perspective."
Analysts said a speech by the head of the Bank of Canada late on Thursday afternoon yielded few surprises. Governor Stephen Poloz reiterated the central bank's neutral stance and that an interest rate cut is just as possible as a rate hike. Poloz also said he was more hopeful than before about an export recovery.
"It really seems like the Bank of Canada wants to stay as neutral for as long as possible. Of course, more on the dovish side of that neutral bias," said Bipan Rai, director of foreign exchange strategy at CIBC World Markets in Toronto.
"I think they're going to try to do that for as long as they can, at least until markets start considering Fed (rate) hikes again."
The Canadian dollar ended the North American session at C$1.1036 to the greenback, or 90.61 US cents, slightly weaker than Thursday's close of C$1.1028, or 90.68 US cents.
The Canadian dollar's rally from March's 4-1/2-year low has run out of momentum in the last two weeks. The currency has traded sideways in recent sessions as it hovers around the technically important C$1.10 level.
Next week will offer some potentially market-moving factors, including Canadian monthly gross domestic product figures. Investors will also get a slew of data from south of the border, including the April unemployment report and a policy-setting meeting at the Federal Reserve.
"Really, what we're looking for to shake US dollar-Canadian dollar out of this consolidative phase is stronger US data, which should potentially lead to an increase in volatility in the front-end of the treasury curve and drive bids for the (US) dollar higher," Rai said.
Canadian government bond prices were higher across the maturity curve, with the two-year up 0.8 Canadian cents to yield 1.064 percent and the benchmark 10-year up 11 Canadian cents to yield 2.412 percent.
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