CANADA FX DEBT-Canadian dollar dips, bonds build on gains
* Canada down slightly at C$1.0786 to the U.S. dollar
* Bonds creep higher in featureless trading
By Ka Yan Ng
TORONTO, Sept 11 (Reuters) - Canada's dollar CAD=D3 finished slightly lower against the greenback on Friday, pulled down by softer commodity prices even though the U.S. dollar itself weakened.
The currency was hemmed into a fairly tight range between C$1.0716 and C$1.0793 through the day, and closed at C$1.0786 to the U.S. dollar, or 92.71 U.S. cents, down from C$1.0783 to the U.S. dollar, or 92.74 U.S. cents, at Thursday's close.
The key event of the trading week was Thursday's decision by the Bank of Canada to hold interest rates steady [ID:nN10290237], and with that out of the way traders returned on Friday to taking cues from commodity-price and stock-market direction.
The price of oil, a major Canadian export, fell towards $69 a barrel, cutting into Friday's gains on the Toronto stock market, whose resource-filled main index briefly touched an 11-month high and stayed resilient despite lower commodity prices.
"It's a pure sentiment play at this time," said Brendan McGrath, senior foreign exchange trader at Custom House in British Columbia.
"It's just more U.S.-dollar weakness across the board and very choppy trading in illiquid conditions today."
BONDS FORGE AHEAD
Canadian government bond prices crept higher across the curve, adding to Thursday's surge, but without any concrete events to trigger the move.
"There's not a lot of really weighty economic data to hang one's hat on," said Eric Lascelles, chief economics and rates strategist at TD Securities. "Given the sorts of moves that we've seen today, it's been an awfully sleepy one. There's nothing really to get too worked up about."
Secondary data showed the price of new houses in Canada unexpectedly rose in July for the first monthly increase since September 2008, suggesting the housing market may be improving as the economy emerges from recession. [ID:nN1225443]
The short end of the Canadian market outperformed longer-dated issues versus U.S. Treasuries.
The Canadian 10-year bond yield was 2.2 basis points below its U.S. counterpart, compared with 2.5 basis points on Thursday.
"I am a bit surprised the Canada-U.S. 10-year spread is almost precisely even...given greater inflation risk in the U.S., and given what I would still say is greater supply concerns even with Canada's larger planned deficit," Lascelles said.
The two-year bond CA2YT=RR edged up 1 Canadian cent to C$99.60 to yield 1.207 percent, while the 10-year bond CA10YT=RR gained 5 Canadian cents to C$103.50 to yield 3.325 percent. The 30-year bond CA30YT=RR rose 15 Canadian cents to C$119.25 to yield 3.862 percent. (Editing by Peter Galloway)
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