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TORONTO (Reuters) - The Canadian dollar returned to its losing ways versus the U.S. dollar on Thursday as weak data from both Canada and the United States did not bode well for the domestic economy.
Domestic bond prices were all higher across the curve and making up for losses suffered in the previous session as the latest batch of economic data calmed any talk about interest rates by either the Bank of Canada or U.S. Federal Reserve.
At 9:45 a.m. (1345 GMT), the Canadian unit was at C$1.0244 to the U.S. dollar, or 97.62 U.S. cents, down from C$1.0228 to the U.S. dollar, or 97.77 U.S. cents, at Wednesday's close.
The bulk of the Canadian currency's slide followed domestic data that showed the economy shrank by 0.1 percent in May from April, which missed expectations for a 0.2 percent increase.
Adding to the pressure on the domestic currency was weak U.S. data that did not bode well for a Canadian economy that relies heavily on the United States for consuming the bulk of its exports.
"When we look strictly at the Canadian data we're starting to see a little more evidence of things starting to slow down," said George Davis, chief technical strategist at RBC Capital Markets. "And as the market starts to digest the U.S. numbers even more, a further slowdown there isn't good for us in terms of manufacturing and exports."
Data from the United States showed the number of workers filing claims for new jobless benefits rose more than expected last week, while another report showed the economy grew a touch less than expected in the second quarter.
The Canadian dollar has declined in six of the past seven sessions, with the lone gain only a fraction of a cent.
"We've seen (the U.S. dollar) move higher over the last week and a half and I don't think the overall bias has changed," said Davis.
"And if our domestic economy is starting to slow down as well it's going to be difficult for the Canadian dollar to rally in that type of environment."
Davis said if the Canadian currency eventually falls below the C$1.0270-C$1.0275 level it could experience some follow through, as opposed to recent sessions when it has bounced back after nearing those levels.
Canadian bond prices were all higher as the latest data all came in weaker than expected and triggered fresh demand for more secure assets following recent slides in bond prices.
"All the data suggest that there is not a lot of momentum in either the U.S. or Canadian economies," said Sal Guatieri, senior economist at BMO Capital Markets.
"On that basis both the Fed and the Bank of Canada will remain concerned about the downside risks to the economy ... therefore suggesting neither bank is inclined to raise interest rates anytime soon."
The overnight Canadian Libor rate was 3.02500 percent, up from 3.000 percent on Wednesday.
Wednesday's CORRA rate was 2.9993 percent, down from 3.0009 percent on Tuesday. The Bank of Canada publishes the previous session's rate at around 9 a.m. daily.
The two-year bond was up 19 Canadian cents at C$101.40 to yield 2.953 percent. The 10-year bond rose 64 Canadian cents to C$104.16 to yield 3.739 percent.
The yield spread between the two-year and 10-year bond was 84.9 basis points, up from 75.3 basis points.
The 30-year bond jumped 85 Canadian cents to C$114.70 for a yield of 4.123 percent. In the United States, the 30-year treasury yielded 4.580 percent.
The three-month when-issued T-bill yielded 2.44 percent, down from 2.46 percent at the previous close.
Editing by Scott Anderson