Canadian dollar slightly weaker

The Canadian dollar closed slightly weaker against the US currency on Friday, paring steep early losses, after investors latched on to a report showing a pickup in US services sector growth. The Canadian dollar sank early on to C$0.9852, or $1.0150 - its weakest level since March 21 - after a report showing US non-farm payrolls rose far less than expected in May and jobless rate rose to 9.1 percent.
But the dismal report was partly offset by later US services sector data that grew modestly in May while gauges of new orders and employment climbed. "The trends for the Canadian dollar are a little mixed," said Shaun Osborne, chief currency strategist at TD Securities.
"The Canadian dollar tends to underperform on the back of weaker-than-expected numbers and although the ISM on the margin was a little better than expected, it doesn't really offset the big miss we had on the payrolls." He noted the general run of both US and Canadian economic data recently has been quite disappointing.
C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets, said there is concern about the impact of the spillover from the US economy and supply disruptions from the Japan earthquake on Canada. Any external drag on Canadian growth would make the Bank of Canada less likely to resume its rate hike campaign soon, reducing the Canadian dollar's appeal.
The Canadian dollar closed at C$0.9783, or $1.0222, down from Thursday's North American session close at C$0.9756 to the US dollar, or $1.0250. It ended the week 0.1 percent weaker. Osborne said the range of C$0.9765-75 was pivotal as the Canadian dollar has closed around 10 basis points on either side of that level since early last week.
Near term, he sees Canadian dollar support at C$0.9850 and resistance at C$0.9670. He said the near-term trend is likely to be for a weaker Canadian dollar given the difficult seasonal time for stock markets and risk-related assets and speculation about a potential third round of quantitative easing by the US Federal Reserve.
Next week, investors will focus on Canadian purchasing, housing, trade and employment figures. Canada's jobs data for May on Friday will be the most closely watched item, with risk more tilted to the downside for the Canadian dollar if the number comes in below consensus, added TD's Osborne. The central bank is expected to resume raising interest rates in September after it warned on Tuesday that it would "eventually" have to lift borrowing costs, according to a Reuters poll.