Canadian dollar rallies with commodity prices

Wed Mar 5, 2008 5:08pm EST
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 By John McCrank
 TORONTO, March 5 (Reuters) - The Canadian dollar ended a
three-day losing streak against the U.S. dollar on Wednesday,
climbing nearly 1 percent as it got a boost from record oil and
gold prices, and the recent rally in the greenback fizzled.
 Domestic bond prices, with no Canadian economic data to
consider, ended mixed ahead of key data later in the week.
 The Canadian dollar closed at US$1.0143, valuing a U.S.
dollar at 98.59 Canadian cents, up from US$1.0049, valuing a
U.S. dollar at 99.51 Canadian cents, at Tuesday's close.
 "The commodity backdrop is really lending itself towards a
strengthening Canadian dollar again," said Gareth Sylvester,
senior currency strategist at HIFX Plc in San Francisco.
 The Canadian currency is often influenced by swings in
commodity prices as Canada is a major producer of energy and
precious metals.
 U.S. crude oil CLc1 rose to a record high of $104.56
after data showed U.S. supplies unexpectedly dropped, following
an announcement by OPEC earlier in the day that it was not
about to raise production levels.
 Gold, another key commodity Canada produces, also rallied
to a new high as investors hedged against inflation, driven by
the record crude prices. The active gold contract for April
delivery GCJ8 on the New York Mercantile Exchange hit a peak
of $995.20 an ounce.
 The growing concerns about inflation in the United States
weakened the greenback against a basket of currencies.
 Despite the darkening inflation outlook, the U.S. Federal
Reserve is expected to focus on growth when meets in slightly
under two weeks and is expected to slash its key lending rate
by as much as 75 basis points.
 On Tuesday, the Bank of Canada cut its key lending rate by
50 basis points to 3.50 percent, its biggest cut since 2001.
 The bank's accompanying statement indicated more rate cuts
to come, causing a selloff in the Canadian dollar.
 But the market has had time to mull the implications of the
statement and it still sees reasons to buy the currency, said
 "We do expect to see some further rate cuts from the Bank
of Canada, however, that's pretty much in line with the U.S.
also, and therefore Canada will continue to have a yield
advantage over the United States."
 Bond prices were mixed, as investors positioned themselves
ahead of key employment reports from both sides of the border
on Friday.
 "Today was a day of reflection in the bond market, with
investors stepping back and asking, just how much further does
the market really want to push down rates," said Sheldon Dong,
fixed income strategist at TD Waterhouse Private Investment.
 On Thursday, building permits data for January and the
February Ivey Purchasing Managers Index are both due to be
 The two-year bond was up 6 Canadian cents at C$102.69
putting its yield at 2.647 percent, its lowest point since
March 2004. The 10-year bond dipped 4 Canadian cents to
C$102.77 to yield 3.644 percent.
 The yield spread between the two- and 10-year bond was 99.7
basis points, up from 94.5 points at the previous close.
 The 30-year bond fell 37 Canadian cents to C$114.61 to
yield 4.134 percent. In the United States, the 30-year treasury
yielded 4.606 percent.
 The three-month when-issued T-bill yielded 2.81 percent,
down from 2.90 percent at the previous close.
 (Editing by Rob Wilson)