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TORONTO (Reuters) - Canada's currency fell against the U.S. dollar on Thursday, backing away from a near 15-month high as the market paused ahead of the Bank of Canada's interest rate announcement next week.
During the overnight session, the Canadian currency rose to C$1.0207 to the U.S. dollar, or 97.97 U.S. cents, which was its highest level since July 2008.
That rally built on momentum from Wednesday's North American session after upbeat U.S. corporate results boosted investor optimism about a global recovery and their appetite for risk.
But the market slammed into reverse as the day progressed and focus shifted to next Tuesday's Bank of Canada policy announcement, which investors will examine for clues about the timing of the next interest rate hike.
"I think a lot of people have essentially taken profit realizing that's a big risk on the horizon," said Camilla Sutton, currency strategist at Scotia Capital.
"I think it's a bit of give-back after a very substantial move."
The Canadian dollar finished at C$1.0345 to the U.S. dollar, or 96.67 U.S. cents, down from C$1.0259 to the U.S. dollar, or 97.48 U.S. cents, at Wednesday's close.
The weakness follows a mostly uninterrupted rise in the currency this month that took it within striking distance of rising above the U.S. dollar for the first time since July 2008.
Despite the retreat, some analysts see the Canadian dollar continuing its ascent, including prominent commodities and currency analyst Dennis Gartman.
"I think it's a long-term bull market in Canada's favor," he said in an interview on the sidelines of a hedge fund industry event in Toronto on Thursday.
"Canada has stuff. Canada has natural gas, Canada's got coal, Canada's got wheat, Canada's got canola, Canada's got uranium, Canada's got water, and the world needs these things."
Canadian bond prices were mixed across the curve with the short end flat to slightly higher and long-dated bonds lower.
There has been a relatively big backup in yields at the short end due to recent data that showed Canada's economy added six times more jobs than expected in September, said Mark Chandler, fixed income strategist at RBC Capital Markets.
"There's a feeling that as we head into the (Bank of Canada's) meeting next week you might get some of that unwound. Yields may start to edge down a little bit. That seems to be what's supporting the short end."
He said yields at the long end are staying up despite a Canadian 30-year bond auction that went reasonably well. "The reason why yields have been up is really the general firmness of equity markets," he added.
The Bank of Canada held a C$1.5 billion auction of 4.0 percent Government of Canada bonds due June 1, 2041 on Thursday.
The two-year bond was little changed, up 3 Canadian cents at C$99.09 to yield 1.688 percent, while the 30-year bond sank 55 Canadian cents to C$116.40 to yield 4.012 percent.
The Canadian market mostly outperformed U.S. Treasury bonds. The two-year Canadian yield was about 74 basis points above its U.S. counterpart, compared with around 78 basis points on Wednesday.
Additional reporting by Pav Jordan; editing by Peter Galloway