Canadian dollar steady following earlier losses on domestic data

TORONTO (Reuters) - The Canadian dollar pared earlier losses following weaker-than-expected inflation and retail sales data, to finish little changed against its U.S. counterpart on Friday.

Canadian Loonies, otherwise known as a one dollar coin, are displayed on top of an American currency in this posed photograph in Toronto, October 10, 2008. REUTERS/Mark Blinch

Canada’s annual inflation rate rose to 1.5 percent in December from November’s 1.2 percent, short of analysts’ forecasts for an increase to 1.7 percent, while retail sales edged up 0.2 percent in November, just shy of expectations for an increase of 0.5 percent.

Markets were focused on the inauguration and speech by incoming U.S. president Donald Trump to see if he would give any indication on the new administration’s policies.

“The market in general ... were anxiously awaiting any type of surprise comment during the inauguration speech. And when that didn’t happen, for all intents the market feels as though it was ready to call it a week,” said Brad Schruder, director, foreign exchange sales at BMO Capital Markets.

The Canadian dollar CAD=D4 ended at C$1.3327 to the greenback, or 75.04 U.S. cents, little changed from the Bank of Canada's official close of C$1.3314, or 75.11 U.S. cents.

The currency’s strongest level of the session was C$1.3285, while its weakest level was C$1.3388. It has weakened roughly 2 Canadian cents, or 1.5 percent on the week.

Earlier in the week, the loonie, which had been trading near the C$1.30 level against the U.S. dollar, took a tumble after Bank of Canada Governor Stephen Poloz indicated that an interest rate cut was still possible.

Schruder noted that the Canadian dollar’s swing this week from around C$1.30 to just below C$1.34 mirrored moves in mid October following comments from the Bank of Canada.

“That suggests to me that as USD/CAD approaches C$1.30, the Bank of Canada would much prefer to see the Canadian dollar weaken from that point, rather than pick up any steam below that level,” said Schruder.

Canadian government bond prices were mostly higher across the maturity curve, with the two-year CA2YT=RR price up 3.5 Canadian cents to yield 0.772 percent and the benchmark 10-year CA10YT=RR rising 9 Canadian cents to yield 1.75 percent.

The Canada-U.S. two-year bond spread was -42.1 basis points, while the 10-year spread was -71.9 basis points.

Reporting by Solarina Ho; editing by Grant McCool