Canadian dollar boosted by oil prices, bonds mixed

Mon Apr 14, 2008 5:04pm EDT
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 By John McCrank
 TORONTO, April 14 (Reuters) - The Canadian dollar rose
against the U.S. dollar on Monday as the price of oil, a key
Canadian export, closed at a record high.
 Canadian bond prices retreated from earlier highs to finish
mixed in response to rebounding equities markets.
 The Canadian dollar closed at C$1.0196 to the U.S. dollar,
or 98.08 U.S. cents, up from C$1.0234 to the U.S. dollar, or
97.71 U.S. cents, at Friday's close.
 U.S. crude oil futures CLc1 settled at $111.76 a barrel,
boosted by a weaker greenback and supply disruptions ahead of
the U.S. summer driving season.
 Strength in the Canadian dollar was tempered, however, by a
Bank of Canada business survey that showed that Canadian
businesses are gloomier about the near-term future due to a
slowing economy and tighter credit conditions.
 The survey supports the view that more interest rate cuts
are needed to keep the economy out of recession as it gears
 The Bank of Canada has cut its key lending rate by one
percentage point since December to 3.5 percent. A Reuters
survey showed that the majority of Canada's primary securities
dealers expect the bank to shave a half-point off the overnight
rate for a second straight time next week.
 It survey also showed that businesses are concerned about
the rising costs of energy and food, a topic that will be in
the spotlight on Thursday, when Canadian inflation data for
March is released.
 "Inflation will certainly be the big topic for the currency
markets," said Camilla Sutton, currency strategist at Scotia
 On top of the Canadian figures, the United States, Britain,
and the euro-zone are also set to release inflation data this
 "There will be a refocus on how globally there are
inflation pressures, with the exclusion being Canada and I
think that should work in Canada's favor," Sutton said.
 Canada's inflation level has been on the low side of the
Bank of Canada's target range of 1 to 3 percent in recent
months, bucking the trend of most other wealthy nations and
giving the central bank room to cut rates to stimulate the
slowing economy.
 Canadian bond prices ended mixed as investors pulled back
from an early rally in response to a turnaround in equity
 Stock markets opened lower in response to an unexpected
quarterly loss by U.S. bank Wachovia Corp WB.N due to the
global credit crunch.
 Canadian stocks fully recovered and U.S. stocks partially
rebounded during the day, however, diminishing the safe-haven
appeal of government debt.
 "I don't think the market is overreacting to the Wachovia
results yet because there could be more fireworks later this
week," said Sheldon Dong, fixed income analyst at TD Waterhouse
Private Investment.
 Nervous investors now await results from U.S. financial
heavyweights JP Morgan Chase & Co (JPM.N: Quote), Merrill Lynch
MER.N and Citigroup (C.N: Quote), which could trigger a rally in
bonds if they also suffer earnings disappointments.
 The two-year bond climbed 6 Canadian cents to C$102.26 to
yield 2.649 percent. The 10-year bond fell 11 Canadian cents to
C$103.37 to yield 3.563 percent.
 The yield spread between the two- and 10-year bonds was
91.4 basis points, up from 87.1 basis points at the previous
 The 30-year bond fell 50 Canadian cents to C$115.50 to
yield 4.084 percent. In the United States, the 30-year Treasury
yielded 4.084 percent.
 The three-month when-issued T-bill yielded 2.38 percent,
unchanged from the previous close.
 (Editing by Peter Galloway)