By Frank Pingue
TORONTO, Aug 24 (Reuters) - The Canadian dollar finished
higher against the U.S. currency on Friday and for the week as
oil prices rose and a sense of calm returned to global markets
after a string of nagging credit fears.
Domestic bond prices, with no Canadian data to consider,
ended mixed. Shorter-dated debt trickled lower as dealers
unwound recent safe-haven buying.
The Canadian dollar closed at C$1.0520 to the U.S. dollar,
or 95.06 U.S. cents, up from C$1.0553 to the U.S. dollar, or
94.76 U.S. cents, at Thursday's close.
For the week, the Canadian currency rose 0.9 percent to
reclaim the 0.7 percent drop suffered last week when credit
fears escalated and spooked an already nervous marketplace.
The Canadian dollar had fallen as low as 93.76 U.S. cents,
on Wednesday but easing concerns about the global credit crunch
helped boost the currency as investors took on riskier assets.
"The broader story here is that global markets continue to
calm down a bit, there is a bit more confidence in the outlook
and generally that's a positive for the Canadian dollar," said
Doug Porter, deputy chief economist at BMO Capital Markets.
"Whether it's through more risk-taking or a better outlook
for commodity prices, both are positive for Canada."
Porter also said a jump in oil prices to over $71 barrel,
spurred by U.S. refinery problems, also played a role in the
higher Canadian dollar since Canada is a major producer and
exporter of oil.
Investors will now focus on Bank of Canada Deputy Governor
Pierre Duguay's speech on Monday in Kingston, Ontario.
The speech is not expected to have much market impact, but
the question and answer session that follows could offer some
insight into the central bank's monetary policy outlook.
The central bank is widely expected to leave its overnight
rate steady at 4.50 percent on Sept. 5, but forecasts for its
October decision date include a 25 basis point cut, no move and
a quarter-point hike, according to a recent Reuters poll.
Finance Minister Jim Flaherty, speaking to reporters after
a speech in Whitby, Ontario, said Canada must continue to
closely monitor credit issues emanating from the U.S. subprime
mortgage crisis for any domestic impact.
Calmer conditions in credit markets following a bumpy few
weeks knocked shorter-dated bonds lower as dealers decided to
unwind a portion of their recent safe-haven bids.
Recent concerns about the U.S. subprime mortgage market and
the asset backed commercial paper market had been supporting
bond prices for weeks.
"It's a reversal of what we've seen in the past couple of
weeks where there was a tremendous amount of steepening as the
turmoil deepened," said Porter. "This week we saw a bit of an
unwinding of that but yields haven't completely recovered."
The next key piece of Canadian data will be the second
quarter gross domestic product report due Friday.
Porter said he doubts the data will alter Bank of Canada
rate expectations for September but said it could help
determine what the bank will do at its October decision.
The two-year bond dropped 11 Canadian cents to C$99.13 to
yield 4.265 percent, while the 10-year bond ended up 8 Canadian
cents at C$96.95 to yield 4.386 percent.
The yield spread between the two-year and 10-year bond
moved to 12.1 basis points from 19.1 at the previous close.
The 30-year bond rose 52 Canadian cents to C$109.75 to
yield 4.408 percent. In the United States, the 30-year treasury
yielded 4.890 percent.
The three-month when-issued T-bill yielded 3.97 percent,
down from 4.05 percent at the previous close