Toronto (Dow Jones) - The Canadian dollar is lower Friday morning as month-end flows favor the U.S. dollar and political uncertainty adds some degree of pressure to the Canadian unit.
Canadian bonds are mostly lower and are underperforming U.S. Treasurys.
The U.S. dollar was trading at C$1.2435 at 10:01 a.m. EST (1501 GMT), from C$1.2391 at 8:00 a.m. EST (1300 GMT) and C$1.2316 late Thursday.
The U.S. dollar reached a high at C$1.2442, according to electronic trading system EBS, but then retreated somewhat in mid-morning trading.
"I think the main driver overnight was probably the anticipation of very strong U.S. dollar demand for month end," said Shaun Osborne, chief currency strategist at TD Securities.
A couple of TD's larger, real-money type accounts have been buying U.S. dollars over the last few days, reinforcing the impression of significant month-end demand for the U.S. currency, he said.
Other currencies such as the euro and the pound also sold off against the U.S. dollar.
Some market watchers said political risk was becoming a factor for the Canadian dollar after measures in a political and fiscal update from Finance Minister Jim Flaherty prompted anger from opposition parties and the threat to bring the minority Conservative government down at a vote on the measures next Monday.
Such a move could result in another election, or an attempt to form a governing coalition by the three main opposition parties.
Osborne said it's possible there is some talk about political risk in the market, but it hasn't come to his attention as factor moving the currency.
"I just make the observation that we have not a peep in that regard so far this morning," he said.
In domestic data Friday morning, Statistics Canada reported that Canada's current account surplus dropped in July through September, as the pace of rising energy prices dropped back sharply.
The third quarter surplus fell to a seasonally adjusted C$5.64 billion (US$4.58 billion) from C$8.21 billion previously, revised up from the preliminary C$6.76 billion.
The results were consistent with expectations and had little sustained impact on the currency.
"It could have been a bit of a stumbling block for the Canadian dollar if those numbers had come in significantly weaker, but they were pretty much on the money with an upward revision to the previous quarter," Osborne said.
After it probed the C$1.2450 zone but failed to break through, selling pressure could emerge on the U.S. dollar against its Canadian counterpart, he said.
"I generally think it's still a market that's a sell on rallies," he said.
The U.S. dollar is likely headed back to C$1.2000 or lower, but could also return to the C$1.2500 or C$1.2600 area, given that markets remain thin and easy to push around, he said.
On Friday, gross domestic product data for the third quarter will be released.
The consensus call is for a 0.8% annualized increase in GDP in the quarter, while TD is looking for a 2.0% climb, Osborne said.
The release might not have much impact, as trading is still mostly flow driven and responding to equities, with little immediate attention paid to data, he added.
Canadian bonds are mixed but mostly lower Friday morning. They are underperforming U.S. Treasurys.
The 10-year bond is yielding 3.33%.
These are the exchange rates at 10:01 a.m. EST (1501 GMT), 8:00 a.m. EST (1300 GMT), and late Thursday.
USD/CAD 1.2435 1.2391 1.2316
EUR/CAD 1.5822 1.5731 1.5897
CAD/JPY 76.85 77.09 77.53
