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TORONTO (Reuters) - The Canadian dollar fell for the third straight week versus the U.S. dollar on Friday as concerns about what a slowdown in the United States could have on the domestic economy rattled the domestic currency.
Canadian bond prices finished mixed ahead of next week's widely expected Bank of Canada rate cut announcement and key economic data including the consumer price index report.
The Canadian dollar closed at 97.33 U.S. cents, valuing a U.S. dollar at C$1.0274, up slightly from 97.11 U.S. cents, or C$1.0298, at Thursday's close.
Despite the modest rebound, the currency ended the week down 0.7 percent.
Weighing down the Canadian dollar has been concerns about what impact a global slowdown could have on Canada given the nature of its exports, a weak string of economic data and lower commodity prices.
"Basically Canada needs to show it's almost perfect given the high run up in the currency last year," said Doug Porter, deputy chief economist at BMO Capital Markets. "That's a very tough position to maintain if your economic backdrop isn't air tight and we have seen some leaks this year in Canada's data."
So far this year, a slew of Canadian data has fallen short of estimates, including jobs and building permits data.
Porter suggested some traders may have felt the Canadian dollar was a bit oversold, which likely accounted for its higher finish to the week, but that it should not take away from the bigger trend for the currency this year.
Since rising 17.5 percent versus the U.S. dollar in 2007 in a banner year where it was one of the world's best performing currencies, the Canadian dollar is down 3.5 percent in 2008.
Also weighing on the Canadian dollar are widespread market expectations for the Bank of Canada to cut its key interest rate by a quarter of a percentage point to 4.00 percent when it sets monetary policy on January 22.
Canadian bond prices ended mixed and were barely changed as dealers avoided huge positions ahead of key economic data next week and the Bank of Canada's Monetary Policy Report Update.
A Bank of Canada rate cut is already mostly priced into the market, so the MPR Update on Thursday and the CPI report on Friday will likely have more impact on bond prices.
The latest piece of domestic data showed manufacturing sales rose more than expected in November, but it had little impact on bonds since it was so dated.
"It's almost ancient history looking at November because the U.S. economy really ran into that trouble it seems in December," said Porter.
The two-year bond rose 2 Canadian cents to C$101.83 to yield 3.224 percent. The 10-year bond dropped 21 Canadian cents to C$101.57 to yield 3.798 percent.
The yield spread between the two-year and 10-year bond was 57.4 basis points, up from 53.2 basis points at the previous close.
The 30-year bond fell 67 Canadian cents to C$115.65 to yield 4.080 percent. In the United States, the 30-year Treasury yielded 4.285 percent.
The three-month when-issued T-bill yielded 3.61 percent, unchanged from the previous close.
Editing by Renato Andrade