Canadian dollar closes higher, but shy of parity

Wed Apr 16, 2008 4:55pm EDT
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 By Frank Pingue
 TORONTO, April 16 (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 Feb. 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
 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.