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By Frank Pingue
TORONTO, Dec 31 (Reuters) - The Canadian dollar was a touch lower versus the U.S. currency on Monday and looked set to quietly close out 2007, a year in which it reached parity versus its U.S. counterpart.
Domestic bond prices, with no Canadian economic data to consider, followed the bigger U.S. treasury market higher.
At 9:30 a.m. (1430 GMT), the Canadian dollar was at US$1.0175, valuing a U.S. dollar at 98.28 Canadian cents, down from Friday's close of US$1.0198, or 98.05 Canadian cents per U.S. dollar.
Trading desks were thinly staffed ahead of the New Year's day holiday on Tuesday, leaving the domestic currency, which hit a five-week high last week, little chance of making a significant move.
"I think we will remain in this familiar range because of the low liquidity environment," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "And it's unlikely in this environment that any investor or short-term players will take a directional bid on the currency."
In September, the Canadian dollar pushed past parity with the U.S. dollar for the first time since 1976. It hit a modern-day high of US$1.1039 in November before sliding back.
The bulk of its rise was pegged to higher commodity prices, strong domestic data, merger-related interest, a weaker U.S. dollar and higher domestic interest rates.
The Canadian dollar is expected to keep its footing in the early part of 2007, but it is unlikely to retest the intraday high in hit in November.
"In the first quarter we could see the currency trade just above parity around current levels, but as we move forward in to the year it will start struggling," said Strauss.
Canadian bond prices were higher across the curve as dealers took their cue from the U.S. market, given the lack of any domestic data to influence trade.
The desire for bonds carried over from last week U.S. upped the chances of a U.S. Federal Reserve rate cut next month.
The Canadian economic calendar is empty until the release of the industrial product price and raw materials price indexes for November on Jan. 4.
The overnight Canadian Libor rate LIBOR01 was at 4.35500 percent, up from 4.2500 percent on Friday.
Monday's CORRA rate CORRA= was at 4.2595 percent, down from 4.3107 percent on Friday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond rose 10 Canadian cents to C$100.96 to yield 3.721 percent. The 10-year bond was up 25 Canadian cents at C$100.13 to yield 3.983 percent.
The yield spread between the two-year and 10-year bond was 26.2 basis points, up from 24.0 basis points at the previous close.
The 30-year bond rose 51 Canadian cents to C$115.74 to yield 4.076 percent. In the United States, the 30-year treasury yielded 4.472 percent.
The three-month when-issued T-bill yielded 3.89 percent, up from 3.87 at the previous close.
(Editing by Ka Yan Ng)