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TORONTO (Reuters) - The commodity-linked Canadian dollar climbed nearly 1 percent against the U.S. dollar on Tuesday, boosted by record high oil prices.
Canadian bond prices fell as investors shifted assets into equities, which were led higher by energy stocks.
The Canadian dollar closed at C$1.0029 to the U.S. dollar, or 99.71 U.S. cents, up from C$1.0135 to the U.S. dollar, or 98.67 U.S. cents, at Monday's close.
The currency briefly rose above parity with the greenback for the first time in two weeks, hitting US$1.0001, making a greenback worth 99.99 Canadian cents.
Driving the increase was a surge in the price of oil to a record $122.73 on supply worries ahead of the U.S. summer driving season.
Canada is a major producer of oil and its currency is often influenced by moves in its price.
"Canada is outperforming all the majors (currencies)," said Camilla Sutton, currency strategist at Scotia Capital.
"The commodity currencies are generally doing well today, but I would suspect there is probably a flow in there too, just because we are outperforming to such an extent."
Sutton said such a flow could have been related to hedging or mergers and acquisitions.
Canadian economic data during the day was mixed, with building permits falling 4.5 percent in March from February, compared with market expectations for a 1.4 percent gain.
The currency dropped on the news, but quickly rebounded as the data also showed an upward revision of February building permits to a gain of 0.8 percent, compared with the 1-percent drop previously reported.
Other data showed that Canadian purchasing activity rose in at a slower pace in April than in March, but it was above market expectations and helped the Canadian dollar rally.
The Ivey Purchasing Managers Index fell to 57.6 in April from 59.0 in March. The market was expecting a reading of 54.5.
Upcoming data include April housing starts on Thursday and March international merchandise trade data on Friday. Also set for Friday is the April employment report, which Sutton said will be the main event as far as the Canadian dollar is concerned.
Canadian bond prices fell across the curve as a rally in the stock market, led by energy stocks, took away the safe haven appeal of government debt.
"Canada is certainly benefiting from the runup in commodity prices," said Mark Chandler, fixed income strategist at RBC Capital Markets. "It's been the story for a while, but it's certainly increasing in magnitude, so that's obviously, in the grander scheme of things, better for Canada's economy than in the U.S."
The two-year bond fell 7 Canadian cents to C$101.87 to yield 2.814 percent. The 10-year bond slid 47 Canadian cents to C$102.38 to yield 3.687 percent.
The yield spread between the two- and 10-year bonds was 87.3 basis points, up from 84.2 at the previous close.
The 30-year bond shed C$1.16 to C$113.79 to yield 4.176 percent. In the United States, the 30-year treasury yielded 4.668 percent.
The three-month when-issued T-bill yielded 2.59 percent, down from 2.64 percent at the previous close.
Editing by Peter Galloway