By Frank Pingue
TORONTO, Sept 14 (Reuters) - The Canadian dollar shot above
97 U.S. cents for the first time in more than 30 years on
Friday as an expected U.S. interest rate cut next week and weak
data shook the greenback.
Canadian bond prices finished higher, taking advantage of a
weak U.S. retail sales report, while Canadian data supported
the market notion that the Bank of Canada will stick to the
sidelines when it next sets policy.
The Canadian dollar closed at C$1.0305 to the U.S. dollar,
or 97.04 U.S. cents, up from C$1.0327 to the U.S. dollar, or
96.83 U.S. cents, at Thursday's session close.
Earlier in the session the Canadian dollar hit C$1.0277 to
the U.S. dollar, or 97.31 U.S. cents, its highest level since
February 1977, as it neared parity with the U.S. dollar for the
first time since November 1976.
While higher prices for oil and gold, which are major
Canadian exports, have been a key factor behind the currency's
latest surge, the bulk of its gains have been attributed to
U.S. dollar weakness, which intensified last week after a U.S.
jobs report fell short of expectations.
The softness in the U.S. dollar continued on Friday because
of weaker U.S. retail sales data, opening the door to further
Canadian dollar gains .
But the greenback managed to recoup some of its losses and
knocked the Canadian dollar from its earlier session high.
"Today's release of U.S. retail sales didn't necessarily
help the U.S. dollar and I think the Canadian dollar took some
of the benefit of that," said Amarjit Sahota, chief currency
strategist at HIFX Plc in San Francisco.
"But I would say that you've got to be pretty cautious
going forward because it's quite rare that the U.S. economy
goes into a slowdown and Canada doesn't feel the impact."
Weakness in the greenback could carry over into next week
ahead of the U.S. Federal Reserve's widely expected decision to
cut its key fed funds rate and narrow the Canada-U.S. rate gap
in favor of the Canadian currency.
But breaking through parity could be a challenge, at least
until the market is convinced U.S. mortgage issues will not
spill north of the border to a greater extent.
"While the (U.S. dollar) has broken down lower I think it's
still got some more downside potential, albeit not at the same
pace that it's seen more recently," Sahota said.
"So you could actually find the market struggle to break
through parity until it gets absolute certainty that this is
really a U.S. phenomenon and it's not a Canadian phenomena."
Canadian bond prices fell at the short end and rose on the
long end, almost mirroring the performance of the bigger U.S.
treasuries market, which enjoyed the U.S. retail data.
"It's largely on the back of the U.S. retail sales report
which was a little softer than expected," said Sal Guatieri,
senior economist at BMO Capital Markets.
Canadian data showed manufacturing shipments beat estimates
in July while labor productivity rose 0.2 percent in the second
The two-year bond dropped 2 Canadian cents to C$99.15 to
yield 4.269 percent, while the 10-year bond climbed 19 Canadian
cents to C$97.38 to yield 4.333 percent.
The yield spread between the two-year and 10-year bond was
at 6.4 basis points from 8.9 at the previous close.
The 30-year bond gained 44 Canadian cents to C$110.62 to
yield 4.358 percent. In the United States, the 30-year treasury
yielded 4.725 percent.
The three-month when-issued T-bill yielded 4.01 percent,
down from 4.03 percent at the previous close.