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TORONTO (Reuters) - The Canadian dollar fell nearly one percent against the U.S. dollar on Thursday, weakened by softer oil prices and concerns over the health of the economy.
Domestic bond prices followed the U.S. market higher.
At 9:10 a.m., the Canadian dollar was at C$1.0169 to the U.S. dollar, or 98.33 U.S. cents, down from C$1.0072 to the U.S. dollar, or 99.29 U.S. cents, at Wednesday's close.
The market is thinner than usual as many overseas markets are closed for the May Day holiday.
"We have slightly softer oil prices this morning, but we are still stuck in the trading range, so I don't foresee Canada selling off too much from here," said Steve Butler, director of foreign exchange at Scotia Capital.
The price of oil often influences the direction of Canada's currency as it is a major Canadian export.
Butler said the market is also starting to wonder how much of the weakness from the U.S. economic downturn is spilling over into Canada.
Bank of Canada Governor Mark Carney repeated to a parliamentary committee on Wednesday that Canada will likely need to add further monetary stimulus, but that it will depend on the evolution of the global economy and domestic demand.
Last week the Bank of Canada cut its overnight rate by 50 basis points to 3.00 percent. The bank has cut its key rate by a total of 150 basis points since December.
Carney is scheduled to appear before the Senate Banking Committee on Thursday.
Canadian bond prices were slightly higher, but the move was subdued as investors held off from making any big moves ahead of key U.S. data on Friday.
"We're in little bit of a wait and see mode ahead of tomorrow's employment report out of the U.S.," said Doug Porter, deputy chief economist at BMO Capital Markets.
The U.S. Federal Reserve lowered its key lending rate by 25 basis points on Wednesday, and market players will by watching the U.S. data for clues as to future Fed moves.
In Canada, the market has become more aggressive in pricing in future Bank of Canada actions.
"Some of the futures markets are leaning toward another 50 basis points of cuts, which I think is a bit overdone," said Porter. If that is the case, bond prices may fall as the market cuts back its expectations.
The overnight Canadian Libor rate LIBOR01 was 2.9583 percent, down from 3.0450 percent on Wednesday.
The two-year bond rose 3 Canadian cents to C$102.08 to yield 2.711 percent. The 10-year bond climbed 8 Canadian cents to C$103.28 to yield 3.573 percent.
The yield spread between the two- and 10-year bonds was 86.2 basis points, up from 85.0 at the previous close.
The 30-year bond added 11 Canadian cents to C$115.66 to yield 4.075 percent. In the United States, the 30-year Treasury yielded 4.449 percent.
The three-month when-issued T-bill yielded 2.68 percent, unchanged from the previous close.
Reporting by John McCrank; Editing by Scott Anderson