Canadian dollar gains on record high oil prices

Wed Mar 12, 2008 4:58pm EDT
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 TORONTO, March 12 (Reuters) - The Canadian dollar rode
record oil prices to a higher close against a besieged U.S.
dollar on Wednesday, but concerns about Canada's reliance on
the teetering U.S. economy limited the currency's gains.
 Bond prices, with no domestic data to consider, rose across
the curve as investors pondered the economic implications of
$110 oil.
 The Canadian dollar closed at US$1.0099, valuing a U.S.
dollar at 99.02 Canadian cents, up from US$1.0067, valuing a
U.S. dollar at 99.33 Canadian cents, at Tuesday's close.
 During the overseas session the Canadian currency rose to
US$1.0167 its highest level since March 7, valuing a U.S.
dollar at 98.36 Canadian cents.
 U.S. crude prices climbed to a record $110.20 a barrel,
giving support to the commodity-linked Canadian dollar.
 As the day wore on, however, investors began to shy away
from the currency due to the Canada's tight economic ties with
the United States, said Camilla Sutton, currency strategist at
Scotia Capital.
 The United States absorbs more than three quarters of
Canadian exports and the two countries share the world's
largest trading relationship.
 The U.S. has been in an economic downturn for several
months now, as the crisis in its subprime mortgage sector
spread to the broader economy, and hammered credit markets
world wide.
 The U.S. Federal Reserve tried to address the credit market
problems in a co-ordinated move with other central banks on
Tuesday, by making hundreds of billions of dollars available to
market players to increase liquidity.
 While the efforts were initially applauded by investors,
the optimism about the plan's long-term effectiveness turned to
doubt on Wednesday, knocking the greenback to a record low
against a basket of major currencies.
 The softness in the U.S. currency was also seen prompting
investors to buy crude oil as a hedge against an economic
slowdown. Ironically, the record-high crude prices are expected
to add even more pressure to the U.S. economy.
 Canadian bond prices rose, reversing some of their losses
from the previous session as doubts about the central banks'
latest liquidity measures increased.
 The record high oil prices were also partly responsible for
the higher bond prices, said Max Clarke, an economist at
IDEAglobal in New York.
 "For the most part, it (oil) does provide general
sluggishness in the American economy and that puts upward
pressure on bonds."
 Looking forward, Bank of Canada Governor Mark Carney is
scheduled to speak about financial market turbulence on
Thursday to the Toronto Board of Trade.
 The speech will be followed by a news conference where
Carney could offer insight into the central bank's
50-basis-point rate cut last week, which brought the key
overnight rate down to 3.50 percent.
 The two-year bond was up 10 Canadian cents at C$102.74 to
yield 2.604 percent. The 10-year bond rose 54 Canadian cents to
C$103.78 to yield 3.515 percent.
 The yield spread between the two- and 10-year bond was 91.1
basis points, up from 90.7 points at the previous close.
 The 30-year bond increased 81 Canadian cents to C$116.76 to
yield 4.019 percent. In the United States, the 30-year treasury
yielded 4.406 percent.
 The three-month when-issued T-bill yielded 3.20 percent, up
sharply from 2.35 percent at the previous close.