TORONTO (Reuters) - The Canadian dollar fell to its lowest level since early October against the U.S. dollar on Friday as commodities prices sagged anew and Canadian economic growth data left investors uncertain about the prospect of an interest rate cut next week.
Domestic bond prices headed lower after the third-quarter gross domestic product report.
At 11:24 a.m. (1543 GMT), the Canadian dollar was at par with the U.S. dollar, down from US$1.0028, or 99.72 Canadian cents, at Thursday's session close.
Technical selling triggered a slump in U.S. crude oil prices to below $89 a barrel, which was negative for Canada's commodity-linked currency. And spot gold prices also dropped sharply, to around $784 an ounce, partially due to the lower energy prices.
The drop in commodities prices overshadowed news that Canada's economy grew more than expected, to an annualized 2.9 percent in the third quarter.
After the data was released, the Canadian dollar firmed, briefly rising to around US$1.006 from pre-data levels of 1.004, before falling back.
"I think it was a surprise to the market, but the reaction was fairly muted in dollar-Canada," said David Bradley, director of foreign exchange at Scotia Capital.
"There are more reasons to be selling Canada, I think, so we had an initial move (higher), but we came back bid quickly."
Prior to the release of the GDP numbers, a string of weak economic data had amplified concerns about the effects of the strong currency and the U.S. economic slowdown on the country's struggling manufacturing sector.
There is no more domestic data ahead of Tuesday's Bank of Canada interest rate announcement, and a recent Reuters poll showed investors are divided as to whether or not the bank will cut its key overnight rate from 4.50 percent.
Lower interest rates would generally make the currency, which has surged around 60 percent since 2002, less attractive to investors.
The Canadian dollar is down about 5.5 percent this month after surging to a modern-day high of US$1.1039 on November 7. That's biggest monthly decline since at least February 1982, according to Reuters EcoWin.
Canadian bond prices extended losses on the GDP numbers.
Bonds had dropped as investors moved into equities after comments by U.S. Federal Reserve Chairman Ben Bernanke cemented expectations of a rate cut south of the border.
Bernanke said late on Thursday that renewed turmoil in the financial markets had dimmed the prospects for the U.S. economy. That bolstered the view that the Fed would cut rates at its next policy meeting in December.
Investors reacted positively earlier in the week when Fed Vice Chairman Donald Kohn made similar comments, as a rate cut by the Fed was seen as reducing the chances of a U.S. recession.
The overnight Canadian Libor rate was at 4.6050 percent, up from 4.5200 percent on Thursday.
Thursday's CORRA rate was 4.5259 percent, up from 4.5078 percent on Wednesday.
The two-year bond fell 17 Canadian cents to C$100.96 to yield 3.747 percent. The 10-year bond slid 33 Canadian cents to C$99.89 to yield 4.014 percent.
The yield spread between the two-year and 10-year bond moved to 26.7 basis points from 30.9 basis points at the previous close.
The 30-year bond dropped 61 Canadian cents to C$113.96 to yield 4.173 percent. In the United States, the 30-year Treasury yielded 4.407 percent.
The three-month when-issued T-bill yielded 3.92 percent, down from 3.95 percent at the previous close.
Reporting by John McCrank; Editing by Frank McGurty