By Frank Pingue
TORONTO, Feb 21 (Reuters) - The Canadian dollar finished a touch higher versus the U.S. dollar on Thursday, but its rise was largely a result of the greenback weakening on data that provided more evidence of a slowing U.S. economy.
Canadian bond prices followed U.S. Treasuries higher across the curve as the outlook for a weaker U.S. economy and easier monetary policy heightened after a weaker-than-expected U.S. manufacturing report.
The Canadian dollar closed at C$1.0013 to the U.S. dollar, or 99.87 U.S. cents, up from C$1.0130 to the U.S. dollar, or 98.72 U.S. cents, at Wednesday's close.
Canada's economic calendar was bare, leaving its currency more influenced by events elsewhere.
Economic data that showed a sharper-than-expected drop in U.S. mid-Atlantic factory activity this month solidified the market view that the U.S. Federal Reserve will cut interest rates by a half-percentage-point at its March meeting.
It also opened the door to more Canadian dollar gains even though the price of oil, which often dictates the currency's direction, backed off the record high hit earlier this week.
"Even though we are closing a little bit better for the Canadian dollar, it didn't feel like Canada was really part of the action today," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"It just looked like one of those days where the market didn't want to know about risk, and with that the U.S. dollar seemed to be the main currency to suffer today."
The Canadian dollar has been mostly rangebound for several weeks now, hovering just around the parity level versus its U.S. counterpart.
The rally in oil prices, which hit $101.32 a barrel on Wednesday, has not had a significant impact on the currency since high energy prices could crimp global growth and hurt the Canadian dollar given the nature of Canada's exports.
Looking ahead, retail trade data for December is due on Friday and will be watched for any signs of weakness spilling over into the Canadian economy from the U.S. downturn.
With no key domestic data to consider, Canadian bond prices followed the bigger U.S. Treasury market higher, but their gains were smaller than those of earlier this week.
"Some people were quite shocked by how much Canada had resisted selling off in the past few days, so I think the impact on the Canadian bond market was somewhat muted as people gave a little back," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The two-year bond rose 8 Canadian cents to C$101.95 to yield 3.103 percent. The 10-year bond rose 46 Canadian cents to C$101.02 to yield 3.867 percent.
The yield spread between the two- and 10-year bond was 76.4 basis points, down from 77.7 basis points at the previous close.
The 30-year bond gained 64 Canadian cents to C$113.04 to yield 4.219 percent. In the United States, the 30-year Treasury yielded 4.541 percent.
The three-month when-issued T-bill yielded 3.25 percent, unchanged from the previous close.