Canadian dollar turn higher

The Canadian dollar was higher versus the greenback on Friday as attention turned to key US data that showed inflation pressures could be easing. Bond prices, with no Canadian data to consider, followed the bigger US treasuries market higher following the soft inflation data.
The Canadian currency was at C$1.0635 to the US dollar, or 94.03 US cents, up from C$1.0687, or 93.57 US cents, at Thursday's close. Immediately after the US data, the Canadian dollar rose as high as C$1.0605, or 94.30 US cents, before falling back.
"If anything, (the CPI data have) probably taken a little bit more steam out of the US dollar, just because of the low reading on US core inflation," said Doug Porter, deputy chief economist at BMO Capital Markets. Markets have recently priced out a chance of interest rate cuts by the US Federal Reserve this year and US data are being watched closely for confirmation of that view.
The Canadian dollar gained strength overnight, erasing the losses of the previous session, as strong energy prices helped create renewed interest in the Canadian energy sector. Then the release of the May US consumer price index showed a 0.7 percent rise in May, but the core measure was up just 0.1 percent, below Wall Street predictions of a 0.2 percent rise.
The Canadian economic data calendar will see lots of activity next week, including release of the May consumer price index, April wholesale trade, and April retail sales. The currency pushed to a 30-year high versus the greenback last week on a combination of upbeat economic data, higher commodity prices, expectations for Bank of Canada rate hikes, and merger-related interest.
The Bank of Canada has left its overnight rate steady at 4.25 percent since May 2006, but it is widely expected to raise rates in July or September. Canadian bond prices rose as dealers reacted positively to the US core inflation data. "It really is about the US data today," Porter said. "There are so many US economic reports out and it's pretty thin gruel in Canada with just the auto sales result, which basically came in as expected."
Bond prices have taken a beating in recent months due to growing expectations of pressure from higher interest rates in Canada and around the world. The two-year bond rose 5 Canadian cents to C$98.24 to yield 4.705 percent, while the 10-year bond was up 29 Canadian cents to C$95.24 to yield 4.657 percent.
The yield spread between the two-year and 10-year bond was -6.3 basis points, compared with -5.2 basis points at the previous close. The 30-year bond rose 55 Canadian cents to C$117.75 to yield 4.574 percent. In the United States, the 30-year treasury yielded 5.2801 percent. The three-month when-issued T-bill yielded 4.360 percent, down from 4.40 percent at the previous close.