Canada dollar closes at parity, bonds rise

Thu May 15, 2008 5:11pm EDT
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 * Canadian dollar closes at parity with U.S. dollar
 * Oil provides background for currency's strength
 * Bonds higher across the curve in thin trading
 By John McCrank
 TORONTO, May 15 (Reuters) - The Canadian dollar closed at
parity against the U.S. dollar on Thursday as robust energy
prices helped it recover from early losses after the release of
weak manufacturing sales data.
 Domestic bond prices rose across the curve as the weak
domestic data highlighted the impact the U.S. economic downturn
is having on Canada.
 The Canadian currency closed at C$1.0000 to the U.S.
dollar, up from C$1.0043 to the U.S. dollar, or 99.57 U.S.
cents, at Wednesday's close.
 It was the currency's highest close since March 18.
 "It really does seem like the environment in the background
is improving for the Canadian dollar in the short term and
that's partly to do with energy prices... but also developments
in other economies," said David Watt, senior currency
strategist at RBC Capital Markets.
 The price of U.S. crude oil CLc1, while off its record
high of nearly $127 a barrel hit earlier this week, remains
lofty. Canada is a major oil exporter and its currency is often
influenced by the commodity.
 The Canadian dollar was also up against the crosses, such
as the currencies of New Zealand, the Britain, and the
 Watt said that was due to weaker growth outlooks and the
potential for interest rate cuts in those places. Meanwhile, in
the U.S., Canada biggest trading partner, growth is holding up
better than many people expected.
 So while the Canadian and U.S. central banks have both made
deep cuts to their interest rates, they may be ahead of the
curve compared to other major economies.
 The Bank of Canada is expected to make at least one more 25
basis point cut in its key overnight rate to 2.75 percent at
its next fixed announcement data on June 10.
 Domestic data helped bolster that view, as Canadian
manufacturing sales fell 1.6 percent in March after two months
of gains, hurt by an ongoing slump in the auto industry.
Analysts were looking for a 0.2 percent rise.
 Canadian bond prices rose across the curve helped by the
weaker-than-expected manufacturing data, and light trade ahead
of the upcoming Victoria Day long weekend.
 "Basically, traders just spent today squaring up their
positions since there is an early bond close tomorrow," said
Sheldon Dong, fixed income strategist at TD Waterhouse Private
Investment in Toronto.
 Canada has no more data due this week but a slew of reports
are slated for release next week, including April inflation
data on Wednesday and March retail sales figures the following
 The two-year bond rose 9 Canadian cents to C$101.92 to
yield 2.772 percent. The 10-year rose 32 Canadian cents to
C$103.37 to yield 3.560 percent.
 The yield spread between the two- and 10-year bonds was
78.6 basis points, up from 77.7 at the previous close.
 The 30-year bond climbed 37 Canadian cents to C$116.32 for
a yield of 4.040 percent. In the United States, the 30-year
Treasury yielded 4.552 percent.
 The three-month when-issued T-bill yielded 2.63 percent,
down from 2.68 percent at the previous close.
 (Editing by Renato Andrade)