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