TORONTO (Reuters) - The Canadian dollar was knocked down 1 percent to its lowest level in over two weeks versus the U.S. dollar on Thursday due mainly to a decline in prices for the key commodities that Canada produces.
Canadian bond prices outperformed the U.S. Treasury market and ended mostly higher across the curve after Bank of Canada Governor Mark Carney repeated his view that additional monetary stimulus will be required.
The Canadian dollar closed at C$1.0193 to the U.S. dollar or 98.11 U.S. cents, down from C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, at Wednesday's close.
At one point during the session the Canadian dollar fell to C$1.0240 to the U.S. dollar, or 97.66 U.S. cents, which marked its lowest level since April 15.
Canada is a key producer and exporter of many commodities, so the domestic currency stood little chance of extending a three-session win streak since oil prices fell for the third straight day while gold prices hit a four-month low.
"We don't have to look any further than the commodity market," said Matthew Straus, senior currency strategist at RBC Capital Markets.
"It doesn't really matter which commodity you are looking at, all commodities are trading sharply down and that's left the commodity-based currencies under pressure, especially the Canadian dollar."
With no Canadian economic data due out until next week, the currency's direction will be dictated largely by events in the United States, notably the U.S. nonfarm payrolls report for April due out on Friday.
If the nonfarm payrolls report comes in with far fewer jobs lost than the loss of 80,000 jobs that is expected, it could rattle the Canadian dollar.
Strauss suggested a significantly stronger than expected report could extend the recent rally in equity markets and the U.S. dollar. That, he said, could sap demand to use commodities as a hedge against the U.S. dollar, which would add to commodity price weakness and put pressure on the Canadian dollar.
Canadian bond prices ended mostly higher across the curve as the Bank of Canada again said more monetary stimulus would likely be needed beyond the 150 basis points it has already cut from its key overnight interest rate since December.
Last week the Bank of Canada cut its overnight rate by 50 basis points to 3.00 percent and earlier this week the U.S. Federal Reserve cut its fed funds rate to 2 percent.
But Governor Carney told a Senate banking committee on Thursday that more monetary stimulus is likely required.
"Largely it's the comments by Bank of Canada Governor Mark Carney indicating that the Bank of Canada will likely ease rates gain," said Max Clarke, economist at IDEAglobal in New York. "With no data coming out in Canada there was no good reason other than the comments by Governor Carney to push (bond) prices higher in Canada."
The Bank of Canada's next fixed interest rate announcement date is June 10 and the market is expected it to lower rates by 25 basis points.
The two-year bond fell 2 Canadian cents to C$102.03 to yield 2.736 percent. The 10-year bond climbed 11 Canadian cents to C$103.31 to yield 3.569 percent.
The yield spread between the two- and 10-year bonds was 83.3 basis points, down from 85.0 at the previous close.
The 30-year bond added 37 Canadian cents to C$115.92 to yield 4.062 percent. In the United States, the 30-year Treasury yielded 4.497 percent.
The three-month when-issued T-bill yielded 2.65 percent, down from 2.68 percent at the previous close.
Reporting by Frank Pingue; Editing by Peter Galloway