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TORONTO (Reuters) - The Canadian dollar rose versus the U.S. dollar on Thursday and ended a three-session skid as profit-taking weighed on the greenback.
Bond prices could not generate any momentum from Bank of Canada comments that Canadian economic growth is near a standstill and instead followed the bigger U.S. Treasury market to a lower close across the curve.
The Canadian dollar closed at C$1.0142 to the U.S. dollar, or 98.60 U.S. cents, up from C$1.0173 to the U.S. dollar, or 98.30 U.S. cents, at Wednesday's close.
The currency rallied to a session high of C$1.0121 to the U.S. dollar, or 98.80 U.S. cents, after a Bank of Canada Monetary Policy Report that said Canadian growth will plunge in the second quarter and recover in the second half of 2009.
But after dropping in three straight sessions versus its U.S. counterpart, the Canadian dollar found support in the form of profit-taking that hit the greenback.
"With dollar/cad we're just seeing dollar longs being covered, so profit-taking is the theme," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco.
The boost in the Canadian dollar helped it recover some of the losses suffered this week after a hefty 50 basis point interest rate cut by the Bank of Canada on Tuesday and data that cast doubt on the resiliency of domestic spending amid faltering U.S. demand for Canadian goods.
The Bank of Canada said declining exports to a weakening U.S. market will drag domestic economic growth to 0.3 percent in the second quarter of this year from its previous estimate of 2 percent.
"I don't think they indicated or suggested anything that was sort of a contrary to the Bank of Canada (statement) out on Tuesday," Sylvester said.
The commodity-linked Canadian dollar was unable to draw any support from oil prices, which fell to $116.06 a barrel after hitting a record high near $120 a barrel earlier this week.
And despite its higher close, the Canadian dollar remains wedged in a range versus the U.S. currency due to nagging concerns about slowing global growth.
Canadian bond prices followed U.S. Treasuries lower as data that showed signs of resilience in the U.S. economy cast more doubt over future Federal Reserve rate cuts, but the losses were pared somewhat after a weak U.S. new home sales report.
For bonds, it appeared investors placed more emphasis on data that showed resilience in the labor market but mostly pushed aside the weaker home sales figures.
"I still think it's very much a mixed picture," said Eric Lascelles, chief economics and rates strategist at TD Securities. "I don't quite know how to justify the selloff but we are getting a big one and Canada is just taking part even though the MPR still points to further (rate) cuts."
A Reuters poll taken after the bank's MPR showed Canada's primary securities dealers unanimously predict the Bank of Canada will cut its key overnight rate in June, but after that most are calling for a pause in the easing cycle.
The two-year bond fell 19 Canadian cents to C$101.77 to yield 2.872 percent. The 10-year bond dipped 39 Canadian cents to C$102.16 to yield 3.717 percent.
The yield spread between the two- and 10-year bonds was 84.5 basis points, down from 88.8 basis points at the previous close.
The 30-year bond shed 33 Canadian cents to C$113.72 to yield 4.180 percent. In the United States, the 30-year Treasury yielded 4.543 percent.
The three-month when-issued T-bill yielded 2.57 percent, up from 2.53 percent at the previous close.
Editing by Peter Galloway