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TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Monday amid some weak U.S. data, but fell against most other major currencies as the market took the view that what's bad for the U.S., Canada's biggest trading partner, is bad for Canada.
Domestic bond prices rallied along with U.S. Treasuries after an unexpectedly weak reading on the Federal Reserve Bank of New York's "Empire State" manufacturing index, which underscored that the U.S. economy was still weak.
At 9:46 a.m. EDT, the Canadian dollar was at C$1.0238 to the U.S. dollar, or 97.68 U.S. cents, up from C$1.0292 to the U.S. dollar, or 97.16 U.S. cents, at Friday's close.
"Most of the G10 currencies are up fairly strongly against the U.S. dollar today," said Adam Cole, head currency strategist at RBC Capital Markets in London.
Cole said that while the Canadian dollar held its own against the greenback, it fell against most other currencies.
Following its best week in more than three years against a basket of major currencies, the U.S. dollar weakened Monday after a Group of Eight meeting failed to issue a joint statement on currencies.
Going into the meeting, market participants had expected the G8 would say something to support the U.S. dollar and its impact on inflation as energy and fuel prices soar.
The Canadian dollar failed to rise against the greenback overnight, but made up some ground after the U.S. data came in weaker than expected. However, the Canadian dollar still fell along with the U.S. currency on the crosses.
"I think just on the view that the cycles are so intimately linked, that when it's a U.S. cyclical story, as it is on the numbers today, Canada tends to move with the U.S.," said Cole.
The U.S. is by far Canada's biggest trading partner.
While movements in the Canadian dollar recently have been largely dictated by the U.S. dollar, some key domestic data later in the week could take over as the main driver.
On Thursday, the Consumer Price Index for May is due to be released, followed by retail sales data for April on Friday.
"The CPI, in particular, determines the degree to which the market starts to price in the Bank of Canada hiking (interest rates)," said Cole. A stronger than expected reading could lead to some Canadian dollar strength.
Canadian bond prices rallied along with the U.S. market after data from the New York Federal Reserve showed manufacturing in the state was weaker than expected.
"We continue to see an unwind of the major themes of last week, which was a selling off, flattening, and the U.S. underperforming and now you've got the opposite trend," said Eric Lascelles, chief economics and rates strategist at TD Securities.
Last week, bonds sold off after various U.S. Federal Reserve officials said the Fed's main focus was shifting to inflationary concerns rather than the faltering economy.
The overnight Canadian Libor rate was at 3.0233 percent, up from 2.9567 percent on Friday.
Friday's CORRA rate was 3.0043 percent, down from 3.0065 percent on Thursday. The Bank of Canada publishes the previous day's rate around 9 a.m. daily.
The two-year bond climbed 5 Canadian cents to C$100.73 to yield 3.360 percent. The 10-year bond gained 14 Canadian cents to C$100.94 to yield 3.874 percent.
The yield spread between the two-year and 10-year bond was 51.4 basis points, up from 51.3 at the previous close.
The 30-year bond rose 18 Canadian cents to C$113.25 for a yield of 4.204 percent. In the United States, the 30-year Treasury yielded 4.784 percent.
The three-month when-issued T-bill yielded 2.81 percent unchanged from the previous close.
Editing by Bernadette Baum