The Canadian dollar rose for the second straight week against the US currency on Friday, but a bout of profit-taking yanked it back from the five-week high it hit earlier in the session.
Domestic bond prices, with no Canadian data to digest until later next week, followed the US market to a higher close as recent data upped the possibility for a US Federal Reserve rate cut next month.
The Canadian dollar closed at US $1.0198, valuing each US dollar at 98.05 Canadian cents, up from Thursday's close of US $1.0183, or 98.20 Canadian cents per US dollar.
Early in the session the Canadian dollar hit US $1.0250, which marked its highest level since November 20 and gave it a gain of about 4.8 percent over the past two weeks.
But the currency spent most of the last half of the North American session moving lower as traders pocketed a portion of the recent gains ahead of the weekend.
"I think obviously momentum is absent over the holiday period," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco. "It's just really a case of some short-term positions being closed and a bit of profit-taking ahead of the broken start to the first week of January."
Monday is the last trading day of 2007 as financial markets will close Tuesday for New Year's Day and reopen on Wednesday. The early rise in the Canadian dollar was mainly a carry over from Thursday when commodity prices appreciated, a positive for the currency, on news that Pakistani opposition leader Benazir Bhutto had been assassinated.
In September, the Canadian dollar pushed past parity with the US dollar for the first time since 1976. It hit a modern-day high of US $1.1039 in November before sliding back.
Canadian bond prices were higher across the curve as dealers took their cue from the US market, given the lack of any domestic data to influence trade. Helping support the desire for bonds was data that showed sales of new single-family US homes fell much more than expected in November.
That came on the heels of data on Thursday that showed weak durable goods orders in November as well as an unexpected drop in jobless claims last week. The reports upped the chances of a Federal Reserve rate cut next month.
The Canadian economic calendar is empty until the release of the industrial product price and raw materials price indexes for November on January 4. The two-year bond rose 14 Canadian cents to C$100.87 to yield 3.771 percent. The 10-year bond was up 59 Canadian cents at C$99.91 to yield 4.011 percent.
The yield spread between the two-year and 10-year bond was 24.0 basis points, up from 23.7 basis points at the previous close.
The 30-year bond rose C$1.17 to C$115.24 to yield 4.103 percent. In the United States, the 30-year treasury yielded 4.497 percent. The three-month when-issued T-bill yielded 3.87 percent, down from 3.90 percent at the previous close.