By Frank Pingue
TORONTO, July 27 (Reuters) - The Canadian dollar fell hard
against the U.S. currency on Friday after a volatile week in
which it hit a 30-year high only to turn sharply lower as
nervous markets fled to less risky investments.
Bond prices, with no key Canadian data to alter their
direction, rode the coattails of the U.S. treasury market to a
higher close as equity markets remained under pressure.
The Canadian dollar closed at C$1.0618 to the U.S. dollar,
or 94.18 U.S. cents, down from C$1.0536 to the U.S. dollar, or
94.91 U.S. cents, at Thursday's session close.
That is a dramatic move from earlier in the week when the
Canadian dollar shot to a 30-year high of C$1.0337, or 96.74
U.S. cents, after a report showed May retail sales well above
The sudden drop was triggered midway through the week as
investors took profits after the sharp rise. It picked up steam
on Thursday and has yet to let up as nervous markets continued
to abandon the commodity-sensitive Canadian currency in favor
of less risk.
"The Canadian dollar is being lumped in with all kinds of
other riskier assets," said Carlos Leitao, chief economist at
Laurentian Bank of Canada in Montreal. "But I suspect the
Canadian dollar could bounce back once this current nervousness
in the market subsides."
The currency often moves in line with commodity prices and
markets are showing concern that a global economic slowdown
could cut into commodity consumption.
Leitao suggested the Canadian dollar could reclaim some of
the week's losses since the market looks to be pricing in the
potential for a 50 basis point cut to the U.S. federal funds
rate, while the Bank of Canada is expected to hike rates.
The Bank of Canada's key rate is at 4.50 percent after a 25
basis point hike July 10, compared with the U.S. fed funds rate
of 5.25 percent.
BONDS PLAY ALONG
Canadian bond prices extended a recent upturn, mostly
following the lead of the bigger U.S. treasury market, as
investors sought comfort in more secure fixed-income assets.
A Statistics Canada Business Conditions Survey, which
showed manufacturers are more optimistic than expected, had no
apparent impact on bond prices.
U.S. data that showed the economy grew faster than expected
in the second quarter also did little to spoil the rally in
"We're just caught up in this global movement and there's
there's nothing particularly Canadian about this ... we're just
going along for the ride," Leitao said.
The two-year bond rose 8 Canadian cents to C$98.57 to yield
4.568 percent, while the 10-year bond added 30 Canadian cents
to C$96.46 to yield 4.489 percent.
The yield spread between the two-year and 10-year bond was
at -7.9 basis points against -9.1 at the previous close.
The 30-year bond rose 45 Canadian cents to C$109.96 to
yield 4.397 percent. In the United States, the 30-year treasury
yielded 4.931 percent.
The three-month when-issued T-bill yielded 4.61 percent, up
from 4.60 percent at the previous close.