NEWS / Trade Policy

Canada dollar slides on U.S. rate talk, bonds down

TORONTO - The Canadian dollar eased versus the U.S. currency on Friday, stretching the lower boundaries of its recent range as expectations of a widening U.S.-Canada interest rate gap drew yield seekers to the greenback.

Canadian bonds eased alongside U.S. Treasuries in a quiet, rate-driven session.

The currency finished at C$1.1236 to the U.S. dollar, or 89.00 U.S. cents, down from C$1.1189 to the U.S. dollar, or 89.37 U.S. cents, at Thursday's close.

Trading action on Friday was volatile, as it has been all week, as traders mulled shifting interest rate outlooks in both Canada and the United States.

A building stack of strong Canadian data has many now expecting the Bank of Canada will continue its tightening campaign, while the U.S. Federal Reserve is thought to be considering a half-percentage point rate hike for its meeting next week.

On Friday, the greenback was the beneficiary of the rate talk, as comments by Bank of Canada Governor David Dodge earlier this week kept Canadian dollar investors from becoming too enthusiastic about the prospect of a summer rate hike.

Technical factors also played a role in the currency's movement, as it stretched the limits of the C$1.0950-C$1.1250 range it has occupied over the past two months, said David Powell, currency analyst at IDEAglobal in New York.

"It didn't really react too much to any Canadian development," he said.

The currency dropped briefly to an eight-week low of C$1.1290, or 88.57 U.S. cents, before rebounding.

"Looking further out, we see a (stronger Canadian dollar), based on the fact that we've had a slew of strong data coming out of Canada," Powell said.

Powell said he expects another Bank of Canada rate hike by the end of the year, but the focus next week will be on the U.S. Federal Reserve, which will announce its rate decision on Thursday.