Canadian dollar follows commodity prices higher
By Frank Pingue
TORONTO, Jan 2 (Reuters) - The Canadian dollar was higher versus the U.S. currency on Wednesday morning due to a combination of higher commodity prices and a generally weaker greenback.
Bond prices were little changed given the lack of any Canadian economic data to consider until later this week.
At 9:25 a.m. (1425 GMT), the Canadian dollar was at US$1.0099, valuing each U.S. dollar at 99.01 Canadian cents, up from US$1.0087, valuing each U.S. dollar at 99.13 Canadian cents, at Monday's close.
The gain in the Canadian dollar was pegged mostly to a jump in U.S. crude oil prices to near $98 a barrel and to spot gold prices, which hit a 28-year high. Higher gold and oil prices support the Canadian dollar as Canada is a producer and exporter of each.
The Canadian dollar's rise was also enhanced by a weaker greenback ahead of U.S. data later in the week that could justify a U.S. Federal Reserve interest rate cut if they come in weak enough.
"First and foremost we've seen the U.S. dollar come under pressure pretty much across the board and that's having a bit of an impact on (the Canadian dollar)," said George Davis, chief technical strategist at RBC Capital Markets.
"Commodity prices are still fairly firm ... so that's having a bit of a positive impact on the Canadian dollar as well as we start the new year."
The move in the Canadian dollar may be slightly exaggerated given the relatively thinly staffed trading desks in a holiday-shortened week.
The Canadian dollar is coming off a banner year in which it recorded a gain of about 17.5 percent and marched above parity with the U.S. dollar for the first time in 31 years.
That gain included a torrid climb to a modern-day high of US$1.1039 in November before the currency retreated back below parity later that month.
In 2008, many experts expect the Canadian dollar to hover around parity for at least the first quarter before eventually trickling lower as the U.S. economy firms.
"As we move through the mid-point of this year we're likely to see see the U.S. economy scrape along its bottom and based on that outlook we'll start to see interest rate expectations in the U.S. shift as the market starts to backs away from a (U.S.) rate cut scenario," Davis said.
BONDS EDGE HIGHER
Canadian bond prices were a touch higher across the curve given the lack of any domestic data to influence a large move.
The light interest in bonds carried over from last week as U.S. data upped the chances of a U.S. Federal Reserve rate cut later in January.
The Canadian economic calendar is empty until the release of the industrial product price and raw materials price indexes for November on Friday.
The overnight Canadian Libor rate LIBOR01 was at 4.2166 percent, down from 4.3550 percent on Monday.
Wednesday's CORRA rate CORRA= was at 4.2344 percent, down from 4.2595 percent on Monday. The Bank of Canada publishes the previous day's rate at around 9 a.m. daily.
The two-year bond was up 3 Canadian cents at C$100.95 to yield 3.726 percent. The 10-year bond jumped 4 Canadian cents to C$100.11 to yield 3.985 percent.
The yield spread between the two-year and 10-year bond was 25.9 basis points, up from 24.2 basis points at the previous close.
The 30-year bond was up 3 Canadian cents at C$115.59 to yield 4.084 percent. In the United States, the 30-year treasury yielded 4.455 percent.
The three-month when-issued T-bill yielded 3.85 percent, down from 3.86 at the previous close. (Editing by Peter Galloway)
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