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TORONTO (Reuters) - The Canadian dollar finished the year on a firm note against the U.S. greenback on Thursday, supported by stronger oil prices in light trade, and market players predicted momentum for the currency in the new year.
The Canadian dollar finished higher for a second straight month, ending at C$1.0510 to the U.S. dollar, or 95.15 U.S. cents. That is up from C$1.0553 to the U.S. dollar, or 94.76 U.S. cents, at Wednesday's close.
For the year, the currency is up 15.9 percent versus the U.S. dollar, rebounding from its 18.6 percent drop in 2008, which was its worst showing against the U.S. dollar in any year since at least 1950.
Many currency players say the Canadian dollar is poised to climb further early in the new year alongside an improving economy and global outlook, as well as commodity price gains.
Scotia Capital is among foreign exchanges desks that expect the Canadian dollar will reach par with the U.S. dollar in 2010. The Canadian dollar made a run to parity this year, reaching as high as 97.97 U.S. cents, during its long march from its March low of 79.28 U.S. cents. The last time it hit par with the greenback was mid 2008.
"The fundamentals in Canada are strong. Sentiment is bullish Canada, and on a relative basis, Canada should do very well with stronger commodity prices and ongoing U.S. economic recovery," said Camilla Sutton, currency strategist at Scotia Capital.
On Thursday, the currency rebounded after it fell briefly on data that showed weekly U.S. jobless claims hit a 17-month low.
It dropped to 95.02 U.S. cents after the claims data, which lifted hopes for U.S. economic recovery and gave the greenback a shot in the arm. But the Canadian dollar snapped back in a thin market, helped by an oil price that held above $79 a barrel, and rose to a session high of 95.64 U.S. cents.
"There's no point seeking a rational explanation on December 31 when the market is this thin," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
"The movements today are not necessarily going to be indicative of any longer-term influence."
Next week's Canadian and U.S. job statistics for December will be key, with market players expecting further evidence of a healing economy.
The U.S. claims data on Thursday helped to send Canadian bond prices lower across the board, following their U.S. counterparts.
The data prompted a rethink of next week's U.S. nonfarm payrolls release, though it was tempered by revised data showing business activity in the U.S. Midwest was softer than first thought.
"The jobless claims have really begun to suggest that we should realistically at least consider the possibility of a positive payrolls next week. Canada has behaved much more cautiously today," said Eric Lascelles, chief economics and rates strategist at TD Securities.
He said supply will likely be a concern for the U.S. market next year, but to a much lesser degree in Canada, which has lower relative deficit- and debt-to-GDP ratios.
"Increasingly the market is agreeing that the recovery is for real and so it's looking for something new to worry about. The obvious concern going forward is going to be the bond supply story, deficits and how these get managed," Lascelles said.
"Canada is just incredibly superior in terms of its bond issuance needs. They're just not nearly as dire, and as a result the market isn't insisting on the same premium in Canada that the U.S. is being forced to pay right now."
The two-year Canadian government bond was off 10 Canadian cents at C$99.57 to yield 1.480 percent, while the 10-year bond fell 6 Canadian cents to C$101.10 to yield 3.611 percent.
Canadian government bonds outperformed U.S. issues across the curve, with the Canadian 10-year yield 23.2 basis points below its U.S. counterpart, compared with 19 basis points the previous session.
Canadian markets will be closed on Friday, January 1.
Reporting by Ka Yan Ng; Editing by Peter Galloway