TORONTO (Reuters) - The Canadian dollar fell versus the U.S. dollar on Thursday after data from south of the border was mainly in line with expectations while the European Central Bank did as expected and hiked interest rates.
Domestic bond prices were pinned slightly lower across the curve, giving back some of the previous session's gains, as the market had been considering the possibility that the U.S. jobs data would come in much worse than it did.
At 9:45 a.m. EDT, the Canadian unit was at C$1.0180 to the U.S. dollar, or 98.23 U.S. cents, down from C$1.0134 to the U.S. dollar, or 98.68 U.S. cents, at Wednesday's close.
One drag on the Canadian currency was the decision by the European Central Bank to hike its key interest rate by 25 basis points to 4.25 percent.
That marked the ECB's first rate hike in more than a year, which weighed on the Canadian dollar since the Bank of Canada only recently took a break from an aggressive easing campaign and is not expected to start hiking anytime soon.
The Canadian currency was also being rattled by a stronger greenback since the key piece of U.S. data for the week showed the economy shed 62,000 jobs in June, a bit more than the 60,000 jobs that had been forecast.
"Most of the details of the report were on the weak side but I think the market was braced for something considerably worse and there seems to be a little bit of relief for the U.S. dollar," said Doug Porter, deputy chief economist at BMO Capital Markets.
"As well the currency is under just a touch of pressure as the ECB hiked as expected and could possibly hike further and it certainly doesn't look like the Bank of Canada is in any rush whatsoever to start raising rates."
Oil prices jumped to another record above $145 barrel but did not offer much help to the Canadian dollar as its link with oil prices has diminished this year compared with 2007.
Market conditions are expected to become more illiquid as the week goes on with U.S. financial markets closed on Friday for Independence Day and traders are expected to leave their desks early for an extended weekend.
Canadian bond prices, with no domestic economic data to consider, fell alongside the bigger U.S. Treasury market as some market participants had not ruled out a much more negative surprise in the data.
"I think the market was anticipating potentially something much worse on the U.S. employment data," said Porter. "But broadly speaking it's more of the same, the U.S. economy seems to be in a slow motion recession and that doesn't seem to be altered by these data."
The only piece of data still due out in Canada this week will be Friday's Ivey Purchasing Managers Index for June, which is prone to sharp moves since it is not seasonally adjusted.
Ivey data is expected to show that purchasing activity in the Canadian economy rose in June but at a slightly slower pace than in the previous month.
Wednesday's CORRA rate was 3.0096 percent, up from 2.9921 percent on Tuesday. The Bank of Canada publishes the previous day's rate around 9 a.m. daily.
The two-year bond was down 2 Canadian cents at C$100.94 to yield 3.234 percent. The 10-year bond dropped 20 Canadian cents to C$101.70 to yield 3.773 percent.
The yield spread between the two-year and 10-year bond was 53.9 basis points, up from 52.5 at the previous close.
The 30-year bond slipped 18 Canadian cents to C$115.52 for a yield of 4.080 percent. In the United States, the 30-year Treasury yielded 4.560 percent.
The three-month when-issued T-bill yielded 2.55 percent, down from 2.52 percent at the previous close.
Editing by Scott Anderson