Canadian dollar lifted by commodities, U.S. data

Mon Mar 24, 2008 5:21pm EDT
 
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 By John McCrank
 TORONTO, March 24 (Reuters) - The Canadian dollar rose on
the back of a modest bounce in commodity prices and an economic
report out of the United States that suggested a bottom to the
U.S. housing crisis may be in sight.
 Domestic bond prices fell as equity prices rallied,
lessening the safe-haven appeal of government debt.
 The Canadian dollar closed at C$1.0179 to the U.S. dollar,
or 98.24 U.S. cents, up from C$1.0234 to the U.S. dollar, or
97.71 U.S. cents, at Thursday's close.
 The currency had fallen as low as C$1.0309 to the U.S.
dollar, or 97.00 U.S. cents, overnight, its lowest level since
Jan. 23.
 Its rebound followed a 3.6 percent drop against the
greenback last week as commodity prices tumbled from recent
peaks.
 The action in the markets last week was exaggerated by thin
trading due to Friday's Easter holiday. And, with much of
Europe closed for Easter Monday, trading was once again
whippy.
 Gains in commodity prices early in the session helped boost
demand for Canadian dollars.
 "The Canadian dollar bulls took heart from a pause in the
commodity correction," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
 Around 40 percent of Canada's economy is export oriented,
and commodities make up 40 to 50 percent of Canadian exports.
 U.S. crude oil prices CLc1 started out strongly before
fading as the session wore on, but commodities as a group
managed to eke out a modest gain.
 The Reuters-Jefferies CRB Index .CRB, which tracks 19
commodity futures, rose 0.5 percent from Thursday's five-week
low.
 Another factor helping give the Canadian dollar a bounce
was a report out of the United States showing existing home
sales rose 2.9 percent in February, marking the first
month-on-month rise in seven months.
 The United States takes in over three-quarters of Canadian
exports, and fears of a deep U.S. recession have made investors
wary of making big bets on the Canadian dollar.
 The stronger housing numbers may signal a less severe U.S.
downturn, said Strauss.
 "It's giving the market hope that maybe we are beginning to
see a bottom forming in the decline of the U.S. housing
market."
 The news wasn't all good though, as U.S. home prices saw
their biggest year-on-year drop on record, at 8.2 percent,
dating back to 1968.
 BONDS FALL
 Canadian bond prices slumped as a rally in equities markets
helped unwind a flight-to-safety bid that had driven bond
prices higher in recent weeks.
 The equities rally was led by financials after JP Morgan
Chase (JPM.N: Quote) raised its buyout offer for Bear Stearns BSC.N
to about $10 a share from $2.
 There were no Canadian economic data releases to influence
bond market moves. January retail sales data is due on Tuesday
and is expected to show a 1.2 percent rise after a 0.6 percent
climb in December.
 The two-year bond fell 29 Canadian cents to C$102.47 to
yield 2.732 percent. The 10-year bond dropped 60 Canadian cents
to C$103.71 to yield 3.523 percent.
 The yield spread between the two- and 10-year bonds was
79.1 basis points, down from 88.8 points at the previous
close.
 The 30-year bond slipped 59 Canadian cents to C$117.64 to
yield 3.973 percent. In the United States, the 30-year treasury
yielded 4.367 percent.
 The three-month when-issued T-bill yielded 1.68 percent, up
from 1.60 percent at the previous close.