The Canadian dollar rebounded from weakness to finish with slight gains versus the US currency on Friday as weak data pulled the greenback lower.
Bond prices were mixed in thin volumes as Canadian markets closed ahead of Christmas holidays. Markets will reopen on Wednesday. The currency finished at C$1.1660to the US dollar or 85.76 US cents, up from C$1.1670, or 85.69 US cents, at Thursday's close.
The Canadian dollar weakened in the session on lower natural gas prices and slightly weaker-than-expected economic growth data for October. But the currency rebounded, helped by a declining US dollar after US home sales data failed to meet analysts' expectations.
"I think we've seen a little bit of a Canadian dollar rally on some of the crosses, so that's been a benefit, and there's been some corporate interest to sell the US dollar (versus Canada) in a fairly thin market," said George Davis, technical strategist at RBC Capital Markets.
Some suggested the currency could be benefiting from oil settlement flows as Canadian companies repatriate foreign-denominated revenues. Canada's economy grew 0.2 percent in October from September due in large part to an autos-driven rebound in the manufacturing sector. The increase was slightly less than the 0.3 percent rise predicted by market analysts, disappointing observers who had anticipated an even stronger reading after recent data that had topped expectations. Profit-taking and thin volumes have combined to bring the Canadian dollar down about 2 percent from the 14-year high of 87.05 US cents hit just over a week ago.
But analysts expect the currency will regain its upward track when volumes return in January, as robust commodity prices, the country's strong economic fundamentals, and expectations of more Banks of Canada interest rate hikes attract investment.
Bond prices ended mixed, with longer-dated bonds pulled higher by surging US Treasuries after the weak home sales data. With Canadian bonds underperforming their US counterparts, US-Canada yield spreads widened a pattern than should continue as the Bank of Canada is seen implementing more rate hikes in the New Year than the US Federal Reserve.
Canada's overnight lending rate is currently 3.25 percent, while the comparable US fed funds rate is 4.25 percent.
Trading is expected to be quiet and rangebound next week. The two-year bond slipped 1 Canadian cent to C$98.01 to yield 3.835 percent, while the 10-year bond rose 11 Canadian cents to C$103.95 to yield 3.992 percent.
The yield spread between the two-year and 10-year bond moved to 15.7 basis points from 17.8 basis points at the previous close.
The 30-year bond surged 37 Canadian cents to C$117.18 to yield 4.031 percent. In the United States, the 30-year treasury yielded 4.554 percent.
The three-month when-issued T-bill yielded 3.42 percent, unchanged from the previous close.
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