TORONTO: The Canadian dollar strengthened against the greenback on Friday, retracing some of the previous day's decline as investors awaited a round of speeches from US policymakers that could provide insight into the path of monetary policy south of the border.
Trading volumes were not expected to return to usual yet with some investors still on holiday and others impacted by the major snowstorm that hit the US northeast.
Market action has been choppy in recent sessions, leaving the loonie in a trading range even as it closed out 2013 as the currency's weakest year since 2008.
With little else on the economic calendar, investors will take in speeches from a number of US Federal Reserve officials later in the day, including outgoing Fed Chairman Ben Bernanke.
"People, as they always do, will pay quite a bit of attention to what he says," said Greg Moore, FX strategist at TD Securities in Toronto.
"With tapering starting a little sooner than consensus expected last month, the market will be looking for a little bit more clarity on how quickly tapering will progress through the year."
The Canadian dollar was at C$1.0620 to the greenback, or 94.16 US cents, stronger than Thursday's close of C$1.0673, or 93.69 US cents.
Overseas, data showed growth in China's services sector fell to a four-month low in December, suggesting the world's second-largest economy lost momentum at year's end.
The Canadian dollar enters 2014 with most analysts expecting the currency will come under more pressure, hurt by the combination of a dovish Bank of Canada and the gradual unwinding of the Fed's economic stimulus.
Key themes for the loonie will be whether Canadian inflation remains tame and what stronger US economic data will mean for the pace of tapering, said Moore.
"In the case that we do see an extension of this low inflation theme in Canada and continued strength in US economic activity, we could see a quicker pickup in US dollar-Canadian dollar," which could put the Canadian dollar at C$1.08 in the next couple of months, said Moore.
Canadian government bond prices were lower across the maturity curve, with the two-year down 3-1/2 Canadian cents to yield 1.144 percent and the benchmark 10-year down 31 Canadian cents to yield 2.782 percent.
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