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TORONTO (Reuters) - The Canadian dollar ended the North American session above parity with the U.S. dollar on Thursday as investors tied up loose ends before the holidays.
Canadian bond prices fell in response to a late rally in equities markets.
The Canadian dollar closed at US$1.0001, valuing each U.S. dollar at 99.99 Canadian cents, up from 99.67 U.S. cents, or C$1.0033 to the U.S. dollar, at Wednesday's close.
The currency touched a high of US$1.0046 after a positive year-end flow came in at around 6:30 a.m.
"In many ways, 2007 has been the year of the loonie, and it looks like it wants to finish the year in fine style," said Doug Porter, deputy chief economist at BMO Capital Markets.
The Canadian dollar reached parity with the U.S. dollar for the first time in 31 years in September on the back of robust commodities prices, a strong domestic economy and a weakening greenback.
It continued its run to a modern-day high in November, topping US$1.10 on November 7, before quickly reversing its path, and dropping more than 10 percent in less than a month.
"The currency did have a significant correction from early November to early December and it may have weakened a bit too far on some of the cross rates," Porter said.
"It obviously weakened to the point where some people saw some value in it."
The move may have been amplified by illiquidity in the markets as traders, mutual fund managers, and corporate executives head off for the holidays, analysts observed.
But the Canadian dollar has been gaining strength since the end of last week, moving more in tandem with is fellow NAFTA currencies, the U.S. dollar and the Mexican peso, than it had been of late.
Commodity prices remain elevated, supporting the bid for the Canadian dollar, and economic data has shown that the economy has managed to weather the U.S. economic slowdown, global credit crunch, and the effects of the strong currency on the country's manufacturing sector.
Looking ahead, Porter said that most of the value seems to now be priced into the Canadian dollar, making further gains unlikely.
"We see the currency hanging around parity for the first half of next year and then drifting lower in the second half."
A slight rally in the equities markets late in the session was enough to reverse early gains in bond prices in the illiquid pre-holiday environment.
"As you get into the holiday season the market gets so thin that it can move on a dime with out much justification," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The last major Canadian data for the year -- October gross domestic product and retail sales -- are due to be released on Friday.
The two-year bond slipped 3 Canadian cents to C$100.87 to yield 3.779 percent. The 10-year bond dipped 9 Canadian cents to C$100.07 to yield 3.991 percent.
The yield spread between the two-year and 10-year bond was 21.2 basis points, up from 20.1 basis points at the previous close.
The 30-year bond slid 15 Canadian cents to C$115.62 to yield 4.083 percent. In the United States, the 30-year treasury yielded 4.470 percent.
The three-month when-issued T-bill yielded 3.87 percent, down from 3.88 percent at the previous close.
Editing by Peter Galloway