Canada dollar up on firm commodities, bonds mixed

Tue Feb 26, 2008 10:04am EST
 
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 TORONTO, Feb 26 (Reuters) - The Canadian dollar soared
against a weaker U.S. dollar on Tuesday, supported by a solid
domestic economy and commodity prices near recent peaks.
 Domestic bond prices were mixed ahead of the federal
budget, which is due after the market's close.
 At 9:36 a.m. (1436 GMT), the Canadian dollar was at
US$1.0129, valuing a U.S. dollar at 98.73 Canadian cents, up
from US$1.0048, valuing a U.S. dollar at 99.80 Canadian cents,
at Monday's close.
 The commodity-linked Canadian currency has risen 2.6
percent against its American counterpart so far this week,
drawing support from commodity prices which are hovering near
recent record highs.
 Another factor bolstering the Canadian dollar is the
resilience of the domestic economy, said David Powell, currency
analyst at IDEAglobal in New York.
 "It's clear that the U.S. economy has experienced some real
headwinds and is probably in recession even as we speak," he
said.
 "The UK economy is facing similar growth problems and the
euro-zone economy is certainly showing signs it's starting to
crack and Japan is probably in a recession as well, and the
economic resilience of Canada is quite impressive given that
backdrop."
 While there have been a few signs of trouble in the
Canadian economy, such as last week's softer-than-expected
retail sales report, these signs have not been sustained by
consecutive months of bad news.
 "It doesn't seem that the Canadian economy is cracking
under the strains of the dislocations that occurred in the
credit markets at the end of last year as some of its other G7
counterparts," said Powell.
 Looking ahead, Bank of Canada Senior Deputy Governor Paul
Jenkins and Deputy Governor John Murray are scheduled to speak
to a parliamentary committee on the economic impact of the
strong Canadian dollar at 11:00 a.m..
 After the market close, all eyes will be on Finance
Minister Jim Flaherty who will present the federal budget. If
the fiscal plan does not find support among opposition parties,
it could bring down the minority Conservative government and
lead to a general election.
 BONDS LOWER
 Canadian bond prices were mixed as investors waited to see
what the federal budget will bring.
 "There are expected to be some stimulus measures but they
are going to be very modest," said Mark Chandler, fixed income
strategist at RBC Capital Markets.
 "But the debt strategy report also comes out in today's
budget and there could be some possible changes in terms of
bond issuance across the curve and total bill issuance, and so
on."
 The two-year bond dropped 2 Canadian cents to C$101.79 to
yield 3.190 percent. The 10-year bond gained 5 Canadian cents
to C$100.67 to yield 3.912 percent.
 The yield spread between the two- and 10-year bond was 72.0
basis points, down from 72.5 points at the previous close.
 The 30-year bond added 13 Canadian cents to C$112.58 to
yield 4.249 percent. In the United States, the 30-year treasury
yielded 4.245 percent.
 The three-month when-issued T-bill yielded 3.23 percent,
unchanged from the previous close.
 (Editing by Bernadette Baum)