The Canadian dollar strengthened against its US counterpart on Thursday as data showed Canada posted a smaller-than-expected trade deficit in February and as investors positioned themselves ahead of Friday's US payrolls data and the Easter long weekend. Canada's trade deficit shrank to C$984 million from C$1.48 billion in January, much smaller than the C$2 billion shortfall economists had forecast, as exporters benefited from stabilising oil prices. January figures were also revised sharply lower, from C$2.45 billion.
"That's given a boost in terms of protecting the downside risk and how ugly things could've gotten," said Rahim Madhavji, KnightsbridgeFX.com president, who added that some broad-based US dollar weakness also helped.
"With the data that came out, it wasn't pretty, but wasn't terrible. Slightly better than expected and I think for the most part, a little bit of sigh of relief for Canadian dollar bulls."
The Canadian dollar finished the session at C$1.2564 to the US dollar, or 79.59 US cents, stronger than Wednesday's finish of C$1.2626, or 79.20 US cents.
Shaun Osborne, chief currency strategist at TD Securities, said overall disappointing economic data out of the United States recently has put a crimp on US-Canadian dollar spreads.
The two-year spread was at -4.6, while the 10-year was -59.5.
Strategists said traders were also positioning themselves ahead of Friday's US job report for March, which will likely set the market tone next week. Markets in Europe, Canada and most of the United States will be closed for Good Friday, but the US government will remain open.
Canadian government bond prices were mostly lower across the maturity curve, with the two-year down 1 Canadian cent to yield 0.494 percent and the benchmark 10-year off 1 Canadian cent to yield 1.314 percent.
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