Commodities lift Canadian dollar, bonds mixed

Thu Mar 13, 2008 5:13pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar rose against a softer U.S. dollar on Thursday, as record high oil and gold prices gave the commodity-linked currency some support, but gains were limited on concerns that the U.S. economic slowdown could soon spill over into Canada.

Domestic bond prices rose on the short end on news of more credit market stress and some weaker-than-expected U.S. data.

The Canadian dollar closed at US$1.0146, valuing a U.S. dollar at 98.56 Canadian cents, up from US$1.0099, or 99.02 Canadian cents per U.S. dollar, at Wednesday's close.

During the session, the currency hit a high of U.S. 1.0206, valuing a U.S. dollar at 97.98 Canadian cents.

The price of crude oil rose to a record $111 and gold prices surged above the $1,000 mark, as weakness in the greenback prompted investors to buy the commodities as a hedge against an economic slowdown.

Canada is a major producer of oil and gold and its currency was buoyed by the commodities' strength.

But the Canadian dollar's inability to make stronger gains given the commodity backdrop, the weak greenback, a favorable U.S.-Canada interest rate differential, and a raft of strong recent domestic data, suggests a weaker currency in the months to come, said Shaun Osborne, currency strategist at TD Securities.

"Risk aversion is still simmering under the markets here, despite the slightly better mood in the markets today, and the risk of a spillover from the U.S. slowdown is still very much in the forefront of people's minds in terms of the outlook for Canada."   Continued...