4 Min Read
(Repeats to broaden distribution)
* Canadian dollar hits three-week high above 87 U.S. cents
* Appetite for risk helps fuel currency's latest charge
* Bond prices end higher on attractive valuations
By Frank Pingue
TORONTO, Nov 4 (Reuters) - The red-hot Canadian dollar closed higher against the greenback on Tuesday for a sixth straight session, thanks to a combination of lofty commodity prices and expectations that interest-rate cuts will help stimulate global growth.
Domestic bond prices rebounded to finish higher across the curve as improved market sentiment over the past week sent prices to levels that dealers felt were too good to pass up.
The Canadian dollar closed at C$1.1511 to the U.S. dollar, or 86.87 U.S. cents, up 2.6 percent from C$1.1809 to the U.S. dollar, or 84.68 U.S. cents, on Monday.
During the session the currency hit a high of C$1.1480 to the U.S. dollar, or 87.11 U.S. cents, which was up more than 10 cents from the four-year low it dropped to early last week.
The sudden climb by the Canadian dollar, which comes on the heels of its 11.6 percent skid in October, is credited to a slew of factors that include higher prices for key commodities like oil and metals, an improved overall market sentiment and a general sense that the currency was oversold last month.
"In this environment of increasing risk appetite it came as no surprise that the commodity-based currencies performed very well, including the Canadian dollar," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"Clearly now that we are seeing things stabilize both in the equity and commodity front, the Canadian dollar is finding some stability just above C$1.15 (to the U.S. dollar)."
The turmoil in financial markets during October was due largely to concerns about a global recession, but indications that central banks are ready to move to limit weakening in economic activity have helped to ease worries.
There was talk in markets that the European Central Bank and the Bank of England would cut interest rates on Thursday.
Central banks including the People's Bank of China and U.S. Federal Reserve, have recently lowered their key interest rates in a push to stimulate economies and help cope with the slowdown.
BONDS PRICE END HIGHER
Canadian bond prices all ended higher as a recent shift from government debt to riskier assets like stocks left bonds at prices that dealers considered to be attractive.
But the gains were limited as dealers avoided taking huge positions until seeing the results of the U.S. presidential election.
"There's been a reassessment that maybe there is some value even at current levels, particularly if the Fed is going to bring down rates and central banks are not only going to keep rates lower but keep them low for a long time," said Michael Gregory, senior economist at BMO Capital Markets.
Dealers were also awaiting the next batch of domestic data. September's building permits and the Ivey Purchasing Managers Index for October are both set to be released on Thursday.
The key report of the week comes on Friday when the October jobs data is released. After an unexpected surge of 106,900 new jobs in September, analysts surveyed by Reuters expect a decline of 10,000 in October, and for the unemployment rate to rise to 6.2 percent from 6.1 percent.
The two-year bond rose 7 Canadian cents to C$101.57 to yield 1.971 percent. The 10-year bond climbed 41 Canadian cents to C$103.96 to yield 3.753 percent.
The yield spread between the two- and 10-year bond was 185 basis points, up from 173 basis points at the previous close.
The 30-year bond increased 75 Canadian cents to C$112.30 to yield 4.252 percent. In the United States, the 30-year treasury yielded 4.204 percent.