TORONTO, June 1 (Reuters) - The Canadian dollar was higher versus the U.S. currency on Friday and sitting just shy of the three-decade high it reached earlier this week as appetite from overseas investors remained strong.
Domestic bond prices were a touch lower ahead of a slew of U.S. economic data that is expected to set the tone due to the absence of any Canadian economic reports.
At 8:15 a.m. (1215 GMT), the Canadian unit was at C$1.0670 to the U.S. dollar, or 93.72 U.S. cents, up from C$1.0696 to the U.S. dollar, or 93.49 U.S. cents, at Thursday's close.
The rise in the Canadian dollar all week has been pegged to a combination of strong domestic data, and growing expectations for summer rate hikes by the Bank of Canada.
The currency charged as high as C$1.0666 to the U.S. dollar, or 93.76 U.S. cents, this week, its highest level since July 1977 and triggering talk of parity with the U.S. dollar.
"Fundamentals favor the Canadian dollar strengthening," said David Bradley, director of foreign exchange trading at Scotia Capital. "There's definitely an argument to be buying Canadian dollars."
CIBC World Markets said on Friday the Canadian dollar will reach parity with the U.S. dollar by the end of 2007 given the expectations for higher domestic interest rates and solid economic growth.
Other factors supporting the rise in the Canadian dollar have been foreign interest in Canadian companies, a rise in commodity prices and a generally weaker U.S. dollar.
The Bank of Canada left interest rates unchanged at 4.25 percent this week but warned it might raise rates in the near term.
Friday's North American session will be dictated largely by the U.S. data, most notably reports on employment and manufacturing that could offer hints on the U.S. rate outlook,
Strong data could send the greenback higher, but Bradley said momentum will help the Canadian currency find support around C$1.0710 to the U.S. dollar before bouncing back.
Canadian bond prices, with no domestic data to consider, eased slightly ahead of the U.S. reports.
Prices have been in decline over the past three months as improving economic data prompted economists to shift their views on the Canadian interest rate outlook.
The two-year bond was down 1 Canadian cent at C$98.42 to yield 4.591 percent, while the 10-year bond slid 4 Canadian cents to C$96.38 to yield 4.494 percent.
The yield spread between the two-year and 10-year bond was -9.7 basis points, compared with -8.6 basis points at the previous close.
The 30-year bond dipped 3 Canadian cents to C$120.95 to yield 4.390 percent. In the United States, the 30-year treasury yielded 5.019 percent.
The three-month when-issued T-bill yielded 4.32 percent, unchanged from the previous close.