TORONTO, May 2 (Reuters) - The Canadian dollar capped off its second straight losing week with a flat close against the U.S. dollar on Friday, torn between the boost from lofty oil prices and the drag from solid U.S. economic data.
Domestic bond prices, with no Canadian data to set a tone, followed the bigger U.S. Treasury market lower across the curve as investors charged into equity markets after the solid data.
The Canadian dollar closed at C$1.0193 to the U.S. dollar, or 98.11 U.S. cents, unchanged from its Thursday’s close.
For the week, the Canadian currency fell 0.3 percent even though it rallied sharply on Wednesday — hitting its highest level in a week — after a U.S. Federal Reserve rate cut rattled the U.S. dollar and opened the door to a rally.
Early in Friday’s session the Canadian dollar fell to C$1.0245 to the U.S. dollar, or 97.61 U.S. cents, its lowest level since April 14. But it crept back and broke even for the session due to the background of lofty oil prices.
The initial fall during the week’s final session was due largely to a rally by the U.S. dollar, which rose on data suggesting the Fed may be able to end a rate-cutting campaign that removed 325 basis points from its key funds rate since September.
“The economic data in the U.S. was generally stronger than expected and that tempered concerns about the extent of the weakness in the U.S. economy and a sense that maybe the Fed can hold rates unchanged in the near term,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
“So the greenback got support from sort of that view on monetary policy in the U.S., to the detriment of a number of other currencies including the Canadian dollar.”
The key piece of data from the United States showed the economy shed 20,000 jobs in April, far fewer than the 80,000 that analysts had expected the U.S. to lose.
The report eased fears that the U.S. economy faced a growing risk of slipping into a deep recession. And while that is good news for Canada, since the bulk of its exports go to the United States, it failed to trigger interest in the Canadian dollar.
But the commodity-linked Canadian dollar drew support from higher oil prices, which rallied more than 3 percent to over $116 a barrel.
Canadian bonds prices fell out of favor with investors who opted to charge back into equities, given higher resource prices and less concern about the U.S. economy.
The Toronto Stock Exchange’s main index finished with a gain of more than 200 points, due largely to its heavy weighting in resource issues, while the Dow Jones industrial average had a more modest gain of 48 points.
“Certainly in Canada direction was probably established by U.S. markets where that stronger than expected data provided a bit of a bump up in yields,” said Ferley.
“So I think that initiated the rise in yields here in Canada ... but the trend may have been abetted a bit from the weakening in the Canadian dollar.”
Canadian data due next week includes March building permits and the Ivey Purchasing Managers Index for April on Tuesday. April housing starts figures come in on Thursday and the April employment report is set for Friday.
The two-year bond fell 9 Canadian cents to C$101.94 to yield 2.779 percent. The 10-year bond slid 28 Canadian cents to C$103.03 to yield 3.605 percent.
The yield spread between the two- and 10-year bonds was 82.6 basis points, down from 83.3 at the previous close.
The 30-year bond slipped 59 Canadian cents to C$115.31 to yield 4.094 percent. In the United States, the 30-year Treasury yielded 4.584 percent.
The three-month when-issued T-bill yielded 2.65 percent, unchanged from the previous close. (Reporting by Frank Pingue; editing by Rob Wilson)