The Canadian dollar firmed slightly against its US counterpart on Friday but ended the week softer than it started as worries about a possible collapse of Cyprus' banking system spooked investors and limited domestic data failed to impress. The currency slipped 0.4 percent for the week versus the greenback, which continues to benefit from signs of economic recovery and its attraction for safe haven flows.
The weakness in the loonie, as Canada's currency is colloquially known, is expected by some to extend as fresh domestic data paints a more detailed picture of slowing growth. "We have the (Canadian) dollar at C$1.05 within a couple of months as persistently weak Canadian data continues," said Benjamin Reitzes, a senior economist and foreign exchange strategist at BMO Capital Markets. He predicted that growth and inflation data due out next week would be barely positive and well below where the Bank of Canada would consider raising interest rates.
The recent trend in Canadian economic data has been disappointing, with historically erratic jobs numbers a rare bright spot. "Improving data and outlook for the US is strengthening the US dollar and weak data in Canada is weighing on the Canadian dollar," Reitzes said.
The Canadian dollar ended the session at C$1.0233 to the greenback, or 97.72 US cents, slightly stronger than its C$1.0243, or 97.63 US cents, close on Thursday. Cyprus surprised investors last weekend with a plan to tax bank deposits to secure a bailout to stave off bankruptcy, but the tiny island's parliament later rejected it. Russia rebuffed Cypriot entreaties for aid on Friday, leaving the island's increasingly isolated leaders scrambling to strike a bailout deal with the European Union by Monday or face the collapse of its financial system.
Failure to reach a deal could weigh on a raft of assets, including the euro and risk-related currencies such as the loonie, and global stock markets. Gold gained one percent on the week. The loonie strengthened against the Aussie after hitting its weakest level in more than a year on Thursday, but was weaker against the euro and the Swiss franc. It hit its weakest level against the British pound since the start of March. Prices for Canadian government debt were marginally lower across the curve, with the two-year bond off Canadian cents to yield 0.995 percent and the benchmark 10-year bond slipping 5 Canadian cents to yield 1.821 percent.