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Canadian dollar, bonds

finish weaker

TORONTO: The Canadian dollar closed weaker after a day of range-bound trade despite a strong US dollar, dealers said on Friday.

But reports of increasing concern about a rise in US interest rates hurt bond markets on both sides of the border and prevented the Canadian dollar from reaching above the C$1.3550 level once again. It hit selling pressure at the same spot on Thursday.

"People are looking for moderate growth and the tone was that things could shoot up again," one dealer said. "So the US bond market went on the skids and the Canada eased."

Other bond commentators said US treasuries were hurt by recent and upcoming supply.

Canadian currency dealers also said the unit lost ground on reports that the Quebec referendum on separation will be held this fall as planned. Markets reacted favourably to unconfirmed rumours Thursday that the vote could be delayed.

Dealers said the Canadian currency kept within range and little change is forecast overnight.

"The US dollar continues to look solid, so if that doesn't ease we're range-bound here for a while," another dealer said.

The Canadian dollar closed at C$1.3606 (US$0.7349) compared to Thursday's close of C$1.3598 (US$0.7354). On the crosses, it reached 1.0590 marks from 1.0347 at Thursday's close and 69.03 yen from 68.20 yen.

BONDS

Canadian bonds closed sharply lower, drawn down by falling US treasuries in a thin Friday market, economists said on Friday.

The US market plunged as some players sold treasuries, anticipating a US five-year note auction in less than two weeks. After this week's quarterly refunding, a fresh supply is expected to flood the market and drive prices down, said Royal Bank's senior economist Jack Vermeeren.

Canada's 9.0 percent of 2025 fell C$0.76 at 102.34 to yield 8.755 percent against the US 30-year at 6.98 percent for a spread of 180 basis points.

Canadian bonds followed the US amid high volatility due to a thin, pre-weekend market.

"It's in August in a very thin market and it's a Friday," Vermeeren added.

Among new issues in Canada next week, the Bank of Canada will auction C$2.6 billion 7.5 percent five-year bonds on Wednesday.

In other prices, Canada's 9.0 percent of 2004 fell C$0.64 to C$104.05 to yield 8.361 percent, against the US 10-year at 6.61 percent for a spread of 175 basis points.

Canada's three-month cash T-bill traded at 6.48 percent, against the US three-month treasury which rose to 5.58 percent.-Reuter