CANADA FX DEBT-C$ touches 2-1/2 month high as oil rallies

Tue Jan 5, 2010 9:48am EST
 
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 * Canadian dollar up at 96.30 U.S. cents
 * Oil climbs toward $82 a barrel
 * Bond prices edge higher
 By Jennifer Kwan
 TORONTO, Jan 5 (Reuters) - The Canadian dollar hit a 2
1/2-month high against the U.S. dollar on Tuesday as the
commodity-linked currency got a lift from a rally in oil
prices.
 The currency climbed nearly a U.S. cent against the
greenback, touching a high of C$1.0336 to the U.S. dollar, or
96.75 U.S. cents, its highest level since Oct. 20.
 The unit rose as the price of crude oil, a major Canadian
export, edged up toward $82 a barrel. Oil was boosted by frigid
weather in the U.S. and Europe that boosted demand for heating
fuel. [O/R]
 As well, global equity markets were steady on optimism
about the world economy, while the U.S. dollar was broadly
weaker. [MKTS/GLOB] [FRX/]
 Firm equity markets "lowered risk aversion and that
basically pushed the U.S. dollar and allowed the Canadian
dollar to benefit," said George Davis, chief technical
strategist at RBC Capital Markets.
 The other major factor is the rallying price of oil, he
said.
 "We walk through the door in the new year and we're $80 a
barrel moving toward $82 a barrel. The commodity backdrop has
been a bit more of a focus given the big recovery in crude oil
prices. That has added to a positive Canadian dollar sentiment
as well."
 At 9:26 a.m. (1426 GMT), the Canadian dollar was at
C$1.0384 to the U.S. dollar, or 96.30 U.S. cents, up from
Monday's finish at C$1.0414 to the U.S. dollar, or 96.02 U.S.
cents.
 The move higher came after data on Monday showed the U.S.
manufacturing sector grew at its fastest pace in nearly four
years in December, its fifth consecutive month of expansion,
adding to hopes of economic improvement in 2010.
[ID:nN04237488]
 The U.S. dollar also weakened as traders locked in recent
gains ahead of key U.S. jobs data on Friday, which could set
the tone for the currency's near term direction. [USD/]
 BONDS EDGE HIGHER
 Canadian bond prices were slightly higher across the curve,
piggybacking U.S. Treasuries where debt prices rose on Tuesday
as buyers took advantage of recent price drops. [US/]
 "We are seeing a little bit of a retracement phase
development here just based on the fact that the market has
gotten a little overextended," said Davis.
 The two-year government bond CA2YT=RR ticked up 9
Canadian cents at C$99.71 to yield 1.405 percent, while the
30-year bond CA30YT=RR edged 10 Canadian cents higher to
C$114.80 to yield 4.096 percent. [ID:nLDE604160]
 In new issue news, Canada said on Tuesday it plans to issue
a 10-year euro benchmark bond, its second foreign bond of the
fiscal year, to further diversify financing for its foreign
currency reserves.[ID:nLDE604160]
 (Editing by Jeffrey Hodgson)