CANADA FX DEBT-C$ rides oil price rally, bonds firm

Thu Feb 24, 2011 8:25am EST
 
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 * C$ advances to $1.0173, approaches March 2008 high
 * Bond prices firm as investors eye Libya revolt
 By Ka Yan Ng
 TORONTO, Feb 24 (Reuters) - Canada's dollar climbed against
the U.S. currency on Thursday morning, approaching three-year
highs reached last week, as oil prices extended gains on
turmoil in Libya.
 Oil surged again on Thursday on concern unrest in Libya
could spread to other major oil producers in the Middle East,
including Saudi Arabia. Both Brent and U.S. crude futures
LCOc1CLc1 jumped to multiyear highs, providing some support
to Canada's commodity-linked currency. [O/R]
 Rising U.S. crude prices typically help the Canadian dollar
as Canada is a net oil exporter. But strong oil prices have
also fueled concerns about inflation, which might choke the
global economic recovery.
 The Middle East tensions stoked further appreciation in
crude oil prices and demand for safe haven currencies at the
broad expense of the greenback. [FRX/]
 "In other times, you've had a flight to safety bid to the
U.S. dollar that may have counteracted some of the positive
news on Canada but the U.S. dollar is struggling here," said
Mark Chandler, head of Canadian fixed income and currency
strategy at RBC Capital Markets.
 "In the initial stages of the rally in oil prices, (the
Canadian dollar) really didn't gain too much support. But it's
getting more now. It's almost by default."
 He said other commodity currencies such as the New Zealand
and Australian dollars were under pressure from other sources
this week, "so a combination of rising oil prices and no better
alternatives around have helped Canada somewhat."
 At 8:05 a.m. (1305 GMT), the Canadian dollar CAD=D4 was
at C$0.9840 to the U.S. dollar, or $1.0173, up from Wednesday's
finish at C$0.9886 to the U.S. dollar, or $1.0115. It had
reached as high as 0.9822 to the U.S. dollar, or $1.0181, not
far from the March 2008 high reached last week at C$0.9816 to
the U.S. dollar, or $1.0187. If broken, a run towards C$0.9800
may be in the cards, analysts say.
 However, analysts said to be mindful of C$0.9960 to the
U.S. dollar, or $1.0040, its weakest point since Feb. 11 that
was hit in the previous session.
 Canadian government bond prices were higher across the
curve, tracking U.S. Treasuries, as the revolt in Libya spurred
safe-haven demand.
 The two-year Canadian government bond CA2YT=RR was up 1
Canadian cent to yield 1.794 percent, while the 10-year bond
CA10YT=RR gained 24 Canadian cents to yield 3.298 percent.
 No major Canadian data is scheduled for the rest of the
week. The next major data is the December and fourth-quarter
read on economic growth on Monday, followed by the Bank of
Canada's policy setting decision on Tuesday.
 (Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)