The Canadian dollar limped to a lower close versus the US dollar on Friday and capped off its first losing week in three after a thin, quiet session in which moves were amplified because US markets were closed for Independence Day.
Canadian bond prices, which under-performed the US Treasury market all week, continued to benefit from pared expectations for US Federal Reserve interest rate hikes and ended higher across the curve. The Canadian dollar closed at C$1.0200 to the US dollar, or 98.04 US cents, down from C$1.0188 to the US dollar, or 98.15 US cents, at Thursday's close.
For the week the Canadian dollar fell 0.9 percent. But the drop in the Canadian currency did not draw too much concern in a week of trading made slow by the July 4 US holiday and Tuesday's Canada Day holiday. "Liquidity is much lower than usual and not surprisingly the markets are illiquid," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "But the move that we did see today in the Canadian dollar was more driven by flows rather than any strong directional bids."
That explains why the Canadian dollar rallied to C$1.0151 to the US dollar or 98.51 US cents, during the first half of the North American session before trickling lower. The only Canadian data to consider in the session, the Ivey Purchasing Managers Index, showed business purchasing activity increased more than expected in June but also signaled the jobs market may be weakening.
But the few traders in attendance in the muted session did not show much interest in the data since the Bank of Canada's Business Outlook Survey is due out Monday and the domestic June jobs data on July 11.
The June jobs figures, the last data the Bank of Canada will consider ahead of its scheduled interest rate decision on July 15, is expected to show the economy created 10,000 jobs in June, while the unemployment rate was 6.1 percent.
After under-performing US Treasuries all week, Canadian bonds managed to make up some ground with the US Treasury market closed and dealers still believing the US Federal Reserve is not set to raise interest rates.
"This week the view started to shift towards more of a view that the Fed is not going to raise rates any time soon," said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal. "Inflation concerns are important, yes, but the (US economy) is still very week and hence the (Fed) is not going to rock the boat."
The Ivey Purchasing Managers Index showed Canadian business purchasing activity rose to 69.6 in June from 62.5 in May. That was better than market expectations for a reading of 62.0. The Ivey employment index dropped to 58.2 from 59.3 in the previous month, while the prices index climbed to 84.1 from 82.9. The two-year bond rose 4 Canadian cents to C$101.04 to yield 3.179 percent. The 10-year bond increased 25 Canadian cents to C$102.18 to yield 3.710 percent.
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