Canadian dollar edges up on firm commodity prices

Thu Jan 3, 2008 4:44pm EST
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 By Frank Pingue
 TORONTO, Jan 3 (Reuters) - The Canadian dollar ended higher
versus the greenback on Thursday due mostly to higher commodity
prices, but nagging concerns about the U.S. economy capped the
 Canadian bond prices ended mixed ahead of key U.S. payrolls
data due on Friday and the first batch of domestic economic
reports to be released in 2008.
 The Canadian dollar closed at US$1.0092, valuing each U.S.
dollar at 99.09 Canadian cents, up from US$1.0072, or 99.28
Canadian cents, at Wednesday's close.
 The domestic currency hit a session high of US$1.0129, or
98.73 Canadian cents per U.S. dollar, shortly after oil prices
broke through $100 a barrel while gold also hit a record high.
 Canada is a major producer and exporter of both oil and
gold, and its currency often rises as prices for the two
commodities go up.
 But pressing concerns about the health of the U.S. economy
and what fallout that could have on Canada kept the Canadian
dollar's gains in check.
 "It's widely accepted that when the U.S. sneezes Canada
will catch a cold," said Gareth Sylvester, senior currency
strategist at HIFX Plc in San Francisco. "And there hasn't been
enough decoupling between the trading patterns to suggest that
isn't true moving forward."
 Sylvester suggested the market is still trying to look at
U.S. data to see how much the U.S. economy may slow and impact
 Some recent U.S. economic figures have supported the notion
that the U.S. Federal Reserve will cut interest rates later
this month to add life to the economy.
 Any moves by the Canadian dollar this week could be
exaggerated given relatively thinly staffed trading desks
during a holiday-shortened week.
 Canadian bond prices ended flat to lower despite early
gains that were fueled by growing expectations for a U.S. rate
cut this month.
 Bond prices bounced back and forth, and light trading
conditions were likely behind the erratic moves as well as
hesitation ahead of the U.S. payrolls report.
 Investors also had less urgency to rush into bonds given
the commodity-fueled rally on the Toronto Stock Exchange.
 On Friday, Canadian industrial product price and raw
materials price indexes for November will be released, given
Canadian investors their first pieces of data in 2008.
 "Part of if it is just the fact that payrolls is around the
corner," said Mark Chandler, fixed income strategist at RBC
Capital Markets. "But also for for two days in a row our stock
market has outperformed the U.S."
 The two-year bond finished down 1 Canadian cent at C$101.15
to yield 3.616 percent. The 10-year bond dropped 11 Canadian
cents to C$100.59 to yield 3.924 percent.
 The yield spread between the two-year and 10-year bond was
31.4 basis points, up from 28.7 basis points at the previous
 The 30-year bond slipped 48 Canadian cents to C$115.94 to
yield 4.065 percent. In the United States, the 30-year treasury
yielded 4.374 percent.
 The three-month when-issued T-bill yielded 3.81 percent,
down from 3.82 at the previous close.
 (Editing by Janet Guttsman)