By Frank Pingue
TORONTO, July 25 (Reuters) - The Canadian dollar drifted
lower against the U.S. currency on Wednesday, unable to garner
much interest at its 30-year high while the market used the
opportunity to take profits.
Domestic bond prices were mixed in the aftermath of the
strong retail sales report earlier this week, while a key U.S.
GDP report due on Friday remained in focus.
The Canadian dollar closed at C$1.0407 to the U.S. dollar,
or 96.09 U.S. cents, down from C$1.0378 to the U.S. dollar, or
96.36 U.S. cents, at Tuesday's close.
In the overnight session the Canadian dollar started to
back away from the multi-decade high of C$1.0341, or 96.70 U.S.
cents, it reached on Tuesday after the domestic retail sales
report shattered estimates.
It dropped to a session low of C$1.0450, or 95.69 U.S.
cents, extending a theme where the currency briefly pokes its
head above 96 U.S. cents before being batted back down.
"It's just because we keep reaching levels we haven't seen
in 30 years and because of the way the market is positioned,"
said David Bradley, director of foreign exchange trading at
"Whenever we see the Canadian dollar spike there's plenty
of people out there who are happy to take profits on their
positions, and that brings us back into a range trade for a
couple of days until we see further spikes in the currency."
Bradley said he expects the Canadian dollar to remain stuck
in a range of C$1.0390 to C$1.0450 to the U.S. dollar until the
end of the North American session on Thursday.
Another reason for the currency's retreat was a technical
rebound in the greenback after a steady decline.
With no major economic data due in Canada for the rest of
the week, Bradley suggested the currency will have to pin its
hopes for further gains on another drop in the U.S. dollar, or
higher commodity prices.
A jump in oil prices on Wednesday, however, was not enough
to offset the weight on the Canadian dollar, which often
follows energy prices given Canada's role as a major producer
Canadian bond prices were mixed even though the lack of any
fresh domestic data left the market pondering the likelihood of
another Bank of Canada rate hike in September, given the strong
Canadian retail data on Tuesday.
The central bank raised its overnight rate by 25 basis
points to 4.50 percent on July 10, its first move since May
2006, and is widely expected to hike again in September.
The bond market was also shifting its focus to the U.S.
real GDP report due on Friday, which could rebound from the
previous quarter and rattle bonds.
"The bond market could be a little unsettled on Friday but
between now then there doesn't appear to be much going on,"
said Carlos Leitao, chief economist at Laurentian Bank of
Canada in Montreal.
Dealers will also keep an eye on the Business Conditions
Survey of manufacturing industries due on Friday. The report is
not generally a market mover but will offer a look at how
manufacturers view their prospects given the high currency.
The two-year bond dropped 3 Canadian cents to C$98.33 to
yield 4.705 percent, while the 10-year bond rose 5 Canadian
cents to C$95.88 to yield 4.571 percent.
The yield spread between the two-year and 10-year bond was
at -13.4 basis points, from -11.0 at the previous close.
The 30-year bond rose 30 Canadian cents to C$109.01 to
yield 4.451 percent. In the United States, the 30-year treasury
yielded 5.024 percent.
The three-month when-issued T-bill yielded 4.61, unchanged
from the previous close.