By John McCrank
TORONTO, Oct 12 (Reuters) - The Canadian dollar finished
higher against the U.S. dollar on Friday, mainly due to a rally
in commodities prices, even as the greenback staged a small
rally of its own on the back of stronger-than-expected data.
Canadian bond prices, with no major data until next week,
followed U.S. Treasuries lower after a solid U.S. retail sales
report cut into expectations that the U.S. Federal Reserve
would cut its key fed funds rate at the end of the month.
The Canadian dollar closed at 97.31 cents to the U.S.
dollar, or US$1.0276, up from Thursday's session close of 97.63
Canadian cents, or US$1.0202.
After the session ended, the Canadian unit touched a
31-year high of 97.10 Canadian cents to the U.S. dollar, or
(The Canadian dollar) "kind of bucked the trend of slight
(U.S.) dollar strength that we saw against some of the European
currencies in the aftermath of the stronger-than-expected U.S.
retail sales data, which provides some relief for those who are
worried about consumption in the U.S.," said David Powell,
currency analyst at IDEAglobal in New York.
U.S. crude oil prices (CLc1: Quote, Profile, Research) gave the Canadian currency
some support, hitting a record high above $74 dollars a barrel.
Gold prices (GCZ7: Quote, Profile, Research), meanwhile, flirted with 28-year highs
despite the slight rally in the U.S. dollar.
Canada's economy is largely resource-based and its currency
is often given a boost when the prices of major commodities,
such as oil and gold, are strong.
"As long as global growth remains strong on the longer-term
horizon, oil and the hard commodities are likely to stay
elevated," said Powell. He said this should give the Canadian
dollar room to move higher versus the greenback.
Looking ahead to next week, the major event of the week
will be the Bank of Canada's interest rate announcement on
While a Reuters poll on Thursday showed that Canada's
primary security dealers unanimously forecast the central bank
to leave rates steady at 4.5 percent next week, attention will
be paid to the tone of the bank's statement as the market seeks
clues on the direction of monetary policy.
"Last time around the tone was quite dovish, at least it
opened the door to rate cuts," said Carlos Leitao, chief
economist at Laurentian Bank of Canada. "But I think this time
around they're going to play it safe and become a bit more
hawkish, signaling there will be rate hikes once the money
markets return to some sort of normalcy."
Canadian bond prices followed the bigger U.S. Treasuries
market lower after both U.S. retail sales and U.S. producer
prices data beat market expectations.
"The first reaction to the (U.S. data) was that the U.S.
economy is not about to roll over and die, so the market
continues to price out a Fed rate cut," Leitao said.
The U.S. Federal Reserve cut its key funds rate by 50 basis
points to 4.75 percent last month amid a slowing economy that
was being hammered by the global credit crunch.
But Friday's data eroded some of the expectations that the
Fed will resume cutting interest rates when it meets at the end
On Friday, the Bank of Canada said it left C$500 million in
the Large Value Transfer System overnight and planned to leave
another C$500 million in the system on Monday.
It also injected C$404 million into market to lower the
overnight interest rate toward the central bank's target and
The two-year bond was down 11 Canadian cents at C$99.76 to
yield 4.371 percent, while the 10-year bond dropped 46 Canadian
cents to C$96.16 to yield 4.495 percent.
The yield spread between the two-year and 10-year bond
moved to 12.4 basis points from 11.8 at the previous close.
The 30-year bond slid 78 Canadian cents to C$107.94 to
yield 4.511 percent. In the United States, the 30-year treasury
yielded 4.904 percent.
The three-month when-issued T-bill yielded 4.03 percent,
unchanged from the previous close.