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TORONTO (Reuters) - The Canadian dollar shot higher against a weaker U.S. dollar on Wednesday and even came close to hitting parity for the first time in nearly a month, amid lofty commodity prices and rallying equity markets.
Domestic bond prices fell as the latest piece of Canadian data beat estimates while corporate earnings out of the United States comforted investors, who decided to unload secure assets like government debt in favor of stocks.
The Canadian dollar closed at C$1.0014 to the U.S. dollar, or 99.86 U.S. cents, up from C$1.0191 to the U.S. dollar, or 98.13 U.S. cents, at Tuesday's close.
By early afternoon, the Canadian dollar reached 99.98 U.S. cents but failed in its bid to top parity for the first time since March 19. The currency still recorded its biggest percent gain since February 25.
The Canadian dollar started making its move higher during the overnight session as the greenback stumbled on concerns over U.S. bank earnings.
Then the commodity-linked Canadian currency got a boost from a rise in oil prices to a new high above $115 a barrel while North American equity markets rallied sharply, including a 1.8 percent gain by the Toronto Stock Exchange.
It was a change from recent weeks when the Canadian dollar rose or fell alongside the U.S. dollar as investors adopted a buy North America or sell North America sentiment.
"People were bearish U.S. dollar but not bearish on North America so we did get a little bit of an offset," said David Watt, senior currency strategist at RBC Capital Markets.
"I don't know how long it will linger. We'll have to wait and see what happens with Canadian CPI tomorrow and the Bank of Canada meeting next week."
The Canadian inflation numbers for March, due on Thursday, represent the last key piece of domestic scheduled before the Bank of Canada's rate announcement on April 22.
Data released early in the session showed manufacturing sales in Canada rose 1.6 percent in February and beat expectations for a 0.9 percent gain.
Canadian bond prices ended lower across the curve as the boost that higher oil prices and corporate earnings gave to equity markets spoiled investor appetite for safe haven assets like bonds.
Helping raise the tone on equity markets were comfortably strong earnings by U.S. blue chips like Intel Corp (INTC.O) and JPMorgan Chase & Co (JPM.N), which lifted investor spirits after recent disappointments.
"Just getting the seesawing of risk tolerance," said Avery Shenfeld, senior economist at CIBC World Markets. "On days where there are earnings numbers that look a bit brighter we get a flight away from the safety of government bonds and into equities."
But the fall in bond prices was limited ahead of Thursday's inflation data, which is expected to show the Canadian economy resisted the global inflationary headwinds spawned by soaring food and oil prices.
Analysts surveyed by Reuters expect the CPI to have risen 0.5 percent in March from February and core inflation, which excludes volatile items such as gasoline, gaining 0.3 percent.
The two-year bond fell 14 Canadian cents to C$101.98 to yield 2.781 percent. The 10-year bond dropped 29 Canadian cents to C$102.56 to yield 3.666 percent.
The yield spread between the two- and 10-year bonds was 88.5 basis points, down from 91.4 at the previous close.
The 30-year bond slipped 26 Canadian cents to C$114.24 to yield 4.152 percent. In the United States, the 30-year treasury yielded 4.487 percent.
The three-month when-issued T-bill yielded 2.56 percent, up from 2.42 percent at the previous close.