* C$ finishes at 96.32 U.S. cents
* Canadian dollar up 0.6 percent for the week
* Inflation data expected to keep BoC steady on rates
* Bond prices higher
(Updates to close, adds details, quotes)
TORONTO, Oct 16 (Reuters) - Canada's dollar fell against
the U.S. currency on Friday as investor thirst for risk waned
and soft domestic inflation data underpinned expectations the
Bank of Canada will keep rates steady through mid-2010.
North American equity markets, typically a barometer of
risk, notched a lackluster performance on disappointing results
from conglomerate General Electric
and Bank of America
Data also showed Canadian consumer prices fell in September
from a year earlier, thanks largely to tumbling gasoline
prices. While there was other evidence of emerging inflation
pressures, it was not expected to be of concern to the Bank of
The economic reading is expected to permit the central bank
to hold interest rates steady next Tuesday and repeat its
conditional pledge to leave them unchanged at 0.25 percent
"Looking at those CPI figures and looking at the strength
in the currency, it reinforces the view that the Bank of Canada
will maintain an accommodative monetary policy stance longer
than some other countries," said Andrew Pyle, wealth adviser at
Most of Canada's primary dealers forecast on Friday the
central bank is likely to stick to its pledge to keep its
benchmark interest rate at its current near-zero level through
the second quarter of next year. [ID:nTOR006836]
Market watchers expect the central bank to highlight the
currency's spike of some 26 percent since hitting a four-year
low in early March. This week, the Canadian dollar zoomed to a
"There's some concern the Bank of Canada may ramp up some
of its jaw-boning of the Canadian dollar due to the threat of
economic recovery. You might have some traders getting out of
the currency on that basis," said Sal Guatieri, senior
economist at BMO Capital Markets.
After the domestic inflation numbers, the Canadian unit
dropped as low as C$1.0436 to the U.S. dollar, or 95.82 U.S.
cents, compared with around C$1.0334 to the U.S. dollar, or
96.77 U.S. cents, just before the data.
The currency finished at C$1.0382 to the U.S. dollar, or
96.32 U.S. cents, down from C$1.0345 to the U.S. dollar, or
96.67 U.S. cents, at Thursday's close.
Early on Thursday, the currency rallied to C$1.0207 to the
U.S. dollar, or 97.97 U.S. cents, its highest level since July
Friday's inflation data was partly to blame for the
currency's move lower, but experts also pointed to firmness in
The U.S. dollar recovered some of the week's losses on
Friday as some corporate earnings fell short of expectations
and consumer confidence data dimmed investor demand for
higher-yielding, higher-risk currencies. [USD/]
Domestic bond prices climbed across the curve, following
the big U.S. Treasury market where prices were up as weak
stocks fueled safety bids. [US/]
The Canadian bond market was also influenced by the
domestic inflation data, said Pyle.
"It's definitely a bond-friendly number whenever you get
weak inflation numbers," he said.
"Inflation is an enemy of bonds. Any threat of higher
inflation would tend to play out as a negative of bonds."
Also on Friday, the Bank of Canada announced details of its
liquidity operations for the week of Oct. 19, as well as
outlining the details for winding down two of its liquidity
Last month, the central bank said it would further scale
back on providing extraordinary liquidity to money markets, the
latest sign that confidence is returning as the global
financial crisis eases.
The two-year bond
climbed 16 Canadian cents to
C$99.27 to yield 1.605 percent, while the 30-year bond
rose 90 Canadian cents to C$117.40 to yield 3.958
The Canadian market mostly outperformed U.S. Treasury
bonds. The two-year Canadian yield was about 65 basis points
above its U.S. counterpart, compared with around 73 basis
points on Thursday.
(Editing by Rob Wilson)