Canadian dollar boosted by record oil prices

Tue May 20, 2008 5:34pm EDT
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 * Canadian dollar supported by record oil prices
 * Room seen for the Canadian dollar to rise further
 * Bonds rise with U.S. Treasuries
 By John McCrank
 TORONTO, May 20 (Reuters) - The Canadian dollar gained 0.8
percent against the U.S. dollar on Tuesday, as record high oil
prices supported the commodity-linked currency.
 Domestic bond prices followed the U.S. market higher.
 The Canadian dollar closed at US$1.0082, valuing a U.S.
dollar at 99.18 Canadian cents. That was up from US$1.0002,
valuing a U.S. dollar at 99.98 Canadian cents, at Friday's
close. Canadian markets were closed on Monday for the Victoria
Day holiday.
 The Canadian dollar rose to US$1.0128 during the overseas
session, making a greenback worth 98.74. That marked the
currency's highest level since March 17, but a slide by U.S.
equities stopped its progress.
 "With the Dow off so much today, we lost some of our
momentum, but I do feel that Canada is going to continue to be
a bit of an outperformer, in the short run, anyway," said Steve
Butler, senior currency strategist at Scotia Capital.
 Canada sells around three-quarters of its exports to the
United States and concerns are that the U.S. economic downturn
may not have hit bottom yet, which could mean more pain for the
Canadian economy.
 But while the Dow Jones industrial average .DJI dropped
nearly 200 points on worries about U.S. inflation, stoked by
record oil prices near $130 a barrel, the situation in Canada
is different.
 Canada is a major oil exporter, and the strong Canadian
dollar, which rose about 17.5 percent last year, has helped
keep domestic inflation under control.
 Strong commodity prices and a relatively stable economic
environment helped the Toronto Stock Exchange composite index
.GSPTSE gain over 60 points on Tuesday to close at a record
high above 15,000 points.
 So there is room for the Canadian dollar to rise, said
 However, the currency may see some weakness as it gets
closer to the US$1.03 level, which has been the top end of the
range it has been trapped in since late November.
 "I do think there are a lot of people who are going to be
concerned holding Canadian dollars at that level," said
 "But the way oil is going and the way gold has bounced so
nicely and the way the TSX is performing, it's just a matter of
time before we see another push up for the Canadian dollar."
  Domestic data showed wholesale trade rose 0.6 percent in
March, which was better than the 0.4 percent that analysts
surveyed by Reuters had forecast.
 Another report showed foreign investors bought C$5.3
billion worth of Canadian securities in March, while Canadians
divested C$3.3 billion worth of foreign securities in the same
 Upcoming financial reports include April inflation data and
April leading indicators on Wednesday, and the March retail
sales report on Thursday.
 Bond prices cued off the larger U.S. market, which rallied
on a flight to safety, given the retreat by U.S. equities.
 Canadian bonds will likely continue to receive direction
from U.S. Treasuries, at least until the Canadian retail sales
report on Thursday, said Mark Chandler, fixed income strategist
at RBC Capital Markets.
 "We do have a two-year auction tomorrow and the CPI, but we
don't look for the CPI to be very strong, so it shouldn't be
much of a hurdle for bond markets really," he said.
 Bank of Canada Governor Mark Carney is scheduled to give a
speech on "Principles for Liquid Markets" in New York on
Thursday to the New York Association for Business Economics.
His speech will be followed by a news conference.
 The two-year bond rose 7 Canadian cents to C$101.93 to
yield 2.767 percent. The 10-year rose 45 Canadian cents to
C$103.70 to yield 3.517 percent.
 The yield spread between the two- and 10-year bonds was
75.0 basis points, down from 77.7 at the previous close.
 The 30-year bond increased 32 Canadian cents to C$116.61
for a yield of 4.024 percent. In the United States, the 30-year
treasury yielded 4.533 percent.
 The three-month when-issued T-bill yielded 2.62 percent, up
from 2.61 percent at the previous close.