By John McCrank
TORONTO, Feb 15 (Reuters) - The Canadian dollar rose slightly against the U.S. dollar on Friday, but remained rangebound as data showing that Canadian manufacturers are being hurt by the U.S. economic slowdown was tempered by a report highlighting the resilience of the Canadian domestic economy.
Canadian bond prices rallied after the data, which firmed the idea that the Bank of Canada will cut interest rates for the third consecutive time when it meets in March.
At 9:18 a.m. (1418 GMT) the Canadian dollar was at US$1.0022, valuing a U.S. dollar at 99.78 Canadian cents, up from 99.98 U.S. cents, valuing a greenback at C$1.0002 at Thursday's close.
In the overseas session, the currency rose as high as US$1.0081, its highest point since Feb. 1, but was unable to sustain the rally.
"We've got opposing forces that are battling to a draw, so that's why (the Canadian dollar) can't get away from parity and the data today reinforces that," said David Watt, senior currency strategist at RBC Capital Markets.
"The trend is that Canadian sectors that are sensitive to trade with the United States, including manufacturing shipments, are weakening and sectors that are exposed to the Canadian domestic economy, which is still very strong, are doing well."
Data from Statistics Canada showed that Canadian factory shipments of vehicles plunged in December to their lowest level in over a decade, pushing overall manufacturing sales down by a sharper-than-expected 3.4 percent.
Excluding the auto sector, factory sales slipped by a more modest 0.8 percent.
However, StatsCan also released figures showing that sales of new motor vehicles were up 4.8 percent in December after three months of declines, highlighting the strength of the domestic economy.
Despite a downward trend in the second half of 2007, there were more new motor vehicles sold in Canada in 2007 than in 2006.
Watt said he expects the Canadian dollar to hang around parity with the greenback until around mid-year, when he sees the Canadian currency weakening as U.S. economic weakness begins to trump Canadian domestic strength.
Looking ahead, inflation data for January is set to be released on Tuesday and will be the main event for the week.
Canadian bond prices were higher across the board on credit market worries leading into the manufacturing data, which then helped to extend the rally as investors increased their bets that the Bank of Canada will cut interest rates in March.
"The impact of the Canadian dollar and the U.S. slowdown (evident in this unfavorable report), plus yesterday's trade numbers strengthens our case for a 50 bps cut by the BoC next month," said Millan Mulraine, economics strategist at TD Securities in a note.
The Bank of Canada has cut its key lending rate by 25 basis points at each of its last two meetings, putting the overnight rate at 4.00 percent.
The overnight Canadian Libor rate LIBOR01 was at 3.9083, percent, down from 3.9550 percent on Thursday.
Thursday's CORRA rate CORRA= was 3.9793, down from 3.989 percent on Wednesday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 11 Canadian cents to C$102.18 to yield 2.978 percent. The 10-year bond climbed 39 Canadian cents to C$101.27 to yield 3.835 percent.
The yield spread between the two- and 10-year bond was 85.9 basis points, up from 85.4 basis points at the previous close.
The 30-year bond was up 64 Canadian cents at C$112.86 to yield 4.229 percent. In the United States, the 30-year Treasury yielded 4.602 percent.
The three-month when-issued T-bill yielded 3.24 percent, down from 3.26 percent at the previous close. (Editing by Renato Andrade)