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TORONTO (Reuters) - The Canadian dollar closed slightly lower versus the U.S. dollar on Friday in a lackluster session that capped a losing week in which weak retail sales data and a Bank of Canada rate cut rattled the currency.
Bond prices, with no Canadian data to consider on Friday, finished lower across the curve as dealers curtailed bets on further rate cuts by the U.S. Federal Reserve.
The Canadian dollar closed at C$1.0163 to the U.S. dollar, or 98.40 U.S. cents, down from C$1.0142 to the U.S. dollar, or 98.60 U.S. cents, at Thursday's close.
It marked a quiet end to a week in which the Canadian dollar shed 1.1 percent after sliding in four of the five sessions.
The bulk of the Canadian dollar's fall came after a report on Wednesday that showed an unexpected drop in Canadian retail sales for February.
The commodity-linked currency had little reaction to the surge in oil prices to a record high near $120 a barrel, a key reason it has been unable to break out of the tight range it has been wedged in for all of 2008.
"And I think that speaks volumes about which way the market is headed," said Doug Porter, deputy chief economist at BMO Capital Markets. "It just takes a lot of good news to drive the currency higher from current levels and not much at all to knock it down."
In the latest session, the Canadian dollar stuck to a range of C$1.0121 to the U.S. dollar, or 98.81 U.S. cents, and C$1.0189 to the U.S. dollar, or 98.15 U.S. cents.
Another drag on the Canadian currency this week, though a more minor one, was a widely expected 50-basis-point interest rate cut from the Bank of Canada and its signal that at least one more rate cut lies ahead.
Data due next week that will grab the market's attention includes the February gross domestic product report due on Wednesday along with industrial product price and raw materials price indexes for March.
Canadian bond prices dropped on a one-two punch of renewed worries over rising global price pressures and talk that the Fed's aggressive rate-cut campaign may soon be over.
Data from Japan showed annual inflation hit a decade high of 1.2 percent in March on soaring energy costs, which rattled bonds on overseas markets and eventually in North America.
The Fed has slashed its borrowing costs by 3 percentage points since September due to the credit crisis that erupted last year, and some experts feel it will soon step to the sidelines to see if the rate reductions have their intended curative effect.
"Just a general sense that the Fed is nearing the end of the easing cycle," said Porter. "So we just capped off two weeks of heavy-duty selling on Treasuries and it partly spilled over into Canada as there is a general sense that maybe the worst is over on the credit crisis front."
The two-year bond fell 10 Canadian cents to C$101.66 to yield 2.925 percent. The 10-year bond dipped 30 Canadian cents to C$101.85 to yield 3.757 percent.
The yield spread between the two- and 10-year bonds was 83.2 basis points, down from 84.5 basis points at the previous close.
The 30-year bond shed 38 Canadian cents to C$113.08 to yield 4.215 percent. In the United States, the 30-year Treasury yielded 4.593 percent.
The three-month when-issued T-bill yielded 2.60 percent, up from 2.57 percent at the previous close.
Editing by Peter Galloway