TORONTO, Aug 16 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as equity markets held on to recent gains and ahead of domestic inflation data in the coming week that could guide expectations for Bank of Canada interest rate cuts.
The loonie was trading 0.3% higher at 1.3692 per U.S. dollar, or 73.04 U.S. cents. For the week, the currency was also up 0.3%, adding to the previous week's gains.
"A decent finish to the week for the Canadian dollar," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull. "I think the ability for equities to shrug off this morning's mildly hawkish-looking Michigan sentiment and inflation expectation readings has helped."
The University of Michigan's preliminary reading on the overall index of consumer sentiment rose in August, while inflation expectations remained unchanged over the next year and beyond.
Wall Street's main indexes were on course for their best weekly performance this year as better-than-expected data calmed nerves over a recession.
"Zooming out, the prospects for CAD continue to look good following last week's bullish weekly reversal pattern on the charts," Bregar said.
The currency has rebounded after tumbling on Aug. 5 to its weakest level in nearly two years at 1.3946 when financial market volatility globally soared.
Domestic data was mixed. Factory sales fell 2.1% month-over-month in June, while housing starts jumped 16% in July.
The Canadian consumer price index report for July, due on Tuesday, is expected to show inflation slowing to 2.4% from 2.7% in June. The BoC has said it is likely to continue to lower interest rates if inflation cools in line with forecasts.
Canadian bond yields edged lower across the curve, with the 10-year down half a basis point at 3.074%.
Reporting by Fergal Smith; editing by Jonathan Oatis
