July 10, 2008 / 8:48 PM / in 9 years

Canadian dollar rises with oil price, bonds mixed

TORONTO (Reuters) - The Canadian dollar closed at its highest level in more than two weeks on Thursday, as a jump in oil prices helped spark some interest in the commodity linked currency ahead of Friday’s domestic jobs report.

Bond prices, with no domestic data to influence a move, ended mixed in light trading.

The Canadian dollar closed at C$1.0091 to the U.S. dollar, or 99.10 U.S. cents, up from C$1.0111 to the U.S. dollar, or 98.90 U.S. cents, at Wednesday’s close. It was its highest close since June 25.

The currency spent the session in a fairly tight range of C$1.0137 to C$1.0076 as traders avoided major bets before seeing how the job market fared in June.

The moderate rally was mainly due to a $5 jump in the price of U.S. crude oil to over $141 a barrel, said Matthew Strauss, senior currency strategist at RBC Capital Markets.

“That clearly helped the Canadian dollar,” he said, adding that a rally on the Toronto Stock Exchange, which had opened up in negative territory, also helped the currency advance.

Looking ahead to Friday’s employment figures, the last major piece of data before the Bank of Canada’s scheduled rate decision on Tuesday, analysts expect an increase of 10,000 jobs in June with an unemployment rate of 6.1 percent, according to a Reuters survey.

“If we end up getting a very strong report, although I don’t think it will change the Bank of Canada’s view, it could increase talk about the possibility of a hike next week and that in turn could be positive for the Canadian dollar,” said Strauss.

Alternatively, he said, weak jobs data would have the opposite effect, as it would raise fears the U.S. slowdown is hitting Canada harder and would leave the central bank with less scope to hike rates.

While the bank is largely expected to leave its key overnight rate steady at 3.00 percent, analysts will pay plenty of attention to the accompanying statement to see if the emphasis will remain on the risk of accelerating inflation.

That could suggest an interest rate increase in the months to come and add support to the Canadian currency, analysts said.

BOND PRICES MIXED

Bond prices, with no data to influence direction, ended the session mixed.

“There wasn’t really anything driving the bond market today other than the direction of the equity markets,” said Sheldon Dong, fixed income strategist at TD Securities.

Dong said the expectation that the Bank of Canada will leave interest rates steady for the near future has taken the steam out of the fixed income market.

“Why move the bond market around when you know the central bank can’t do anything for the next couple months?”

The two-year bond rose 5 Canadian cents to C$101.09 to yield 3.150 percent. The 10-year bond gained 5 Canadian cents to C$104.14 to yield 3.744 percent.

The yield spread between the two-year and 10-year bond was 59.4 basis points, up from 49.8 at the previous close.

The 30-year bond fell 22 Canadian cents to C$115.83 for a yield of 4.063 percent. In the United States, the 30-year treasury yielded 4.422 percent.

The three-month when-issued T-bill yielded 2.39 percent, down from 2.46 percent at the previous close.

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