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TORONTO (Reuters) - The Canadian dollar moved above the U.S. dollar on Friday and was on pace for a second straight weekly gain as the commodity-linked currency drew support from higher oil prices.
Domestic bond prices, with no key Canadian economic data to consider, were lower across the curve following a surprisingly strong piece of U.S. housing data.
At 8:55 a.m. (1255 GMT), the Canadian currency was at US$1.0014, valuing a U.S. dollar at 99.86 Canadian cents, up from C$1.0000 to the U.S. dollar, at Thursday's close.
Earlier, the Canadian dollar rose to US$1.0049, valuing a U.S. dollar at 99.51 Canadian cents, its highest level since March 19. The domestic currency is up about 0.7 percent this week after a gain of 1.4 percent last week.
Trade could be light on Friday, and lend to exaggerated moves, since Canadian markets will be closed on Monday for a public holiday.
Part of the Canadian dollar's strength was due to a weaker greenback, which has fallen as weak U.S. economic data released earlier this week cast doubt on expectations that the Federal Reserve would not cut interest rates further.
But the main factor was lofty oil prices, which bounced back above $125 a barrel after easing from a record near $127 earlier this week.
Canada is a major oil producer and exporter and its currency often follows prices for the commodity, a trend that has started to regain momentum in recent weeks.
"We haven't really seen much in the way of domestic news recently and I think the major driver here is the relentless strength of oil prices," said Doug Porter, deputy chief economist at BMO Capital Markets.
"Admittedly, up until recently the Canadian dollar had been studiously ignoring the strength in oil prices and other commodities, but I think it's just gotten to the point where the impact is undeniable and it looks like it is more than a short term blip above $120 (a barrel).
With no Canadian economic data due on Friday, the Canadian currency will likely continue to be dictated largely by commodity prices.
But next week the slate of economic data picks up with a slew of reports that include April inflation data on Wednesday and March retail sales on Thursday.
Canadian bond prices took their cue from the U.S. Treasury market and were lower across the curve as the latest U.S. data showed unexpectedly higher housing starts for April.
The data helped inject a mildly positive tone into a market seeking good news, and revived some of the speculation that the Fed may be done, or near, cutting interest rates.
"It might provide a little shot in the arm for the day," said Max Clarke, economist at IDEAglobal in New York. "But I don't think anyone should be blinded by the light and think and think housing it out of the woods in the U.S."
The two-year bond was down 9 Canadian cents at C$101.83 to yield 2.816 percent. The 10-year fell 23 Canadian cents to C$103.15 to yield 3.588 percent.
The yield spread between the two- and 10-year bonds was 77.7 basis points, down from 78.6 at the previous close.
The 30-year bond dropped 21 Canadian cents to C$116.09 for a yield of 4.052 percent. In the United States, the 30-year Treasury yielded 4.586 percent.
The three-month when-issued T-bill yielded 2.65 percent, up from 2.63 percent at the previous close.
Editing by Janet Guttsman