TORONTO, Aug 23: The Canadian dollar reversed course against the US dollar on Friday, rebounding from early weakness as profit taking and options-related selling halted the greenback’s surge.
Bonds ended crept higher as a lack of economic data convinced dealers to hold off.
The currency finished at C$1.4017 to the US dollar, or 71.34 US cents, up from C$1.4072 to the US dollar, or 71.06 US cents, at the Thursday’s close.
The currency had been in danger of recording its fifth-straight losing session before it reversed course part way through the day.
Over the last week we’ve seen a dramatic rally in the U.S. dollar, and I think all we’re seeing here is just end of week profit-taking, said George Davis, a currency strategist at RBC Capital Markets.
Options-related selling of the greenback against the Canadian dollar also helped the Canadian currency, analysts said.
We broke through some technical sport at C$1.4090, and I think that’s attracted some fund names to come in and buy some Canada as well. Davis added.
The Canadian dollar has weakened over the past week, as a growing stack of mixed economic data compared unfavorably to strong numbers south of the border.
The weakness has convinced many that the Bank of Canada could cut rates by as much as 50 basis points when it meets in early September. This would pinch the generous interest rate spread over the US currency that drove the Canadian dollar higher earlier this year.
Next Friday’s Canadian GDP number should set the stage for the central bank decision, as some think Canada’s economy may actually have contracted in the second quarter.
The market will also watch for industrial production and current account data late next week.
Thursday and Friday will be the big days for the Canadian dollar, said Davis. But the overall impression I get is that the market is still biased at least over the short term toward a stronger US dollar.
Analysts have also blamed some of the weakness this week on Ontario’s slow recovery from last week’s blackout.
Manufacturing facilities have been running at reduced speed to lessen the strain on power supplies and that could take a bite out of the economy.
Domestic bond prices inched higher, helped by weak stock markets, although action was muted in the absence of meaningful economic data.
The two-year bond rose 2 Canadian cents to C$100.79 to yield 3.038 per cent, while the 10-year bond advanced 8 Canadian cents to C$102.78 to yield 4.888 per cent.
The yield spread between the two-year and 10-year bond moved to 185.0 basis points from 184.9 at the previous close.
The 30-year bond, due 2029, pushed ahead 8 Canadian cents to C$105.08 to yield 5.383 per cent. In the United States, the 30-year treasury yielded 5.261 per cent.—Reuters