March 26, 2008 / 2:06 PM / in 9 years

Loonie rides commodity prices higher

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal, April 28, 2006. REUTERS/Shaun Best</p>

TORONTO (Reuters) - The Canadian dollar rose to its highest level in a week versus the U.S. dollar on Wednesday due to a combination of higher commodities prices and a generally weaker greenback.

Domestic bond prices, with no Canadian economic data to consider until next week, were higher as fresh concerns about the health of the U.S. economy bolstered demand for more secure assets like government debt.

At 9:40 a.m. (1340 GMT), the Canadian unit was at $1.0166 to the U .S. dollar, or 98.37 U.S. cents, up from $1.0173 to the U.S. dollar, or 98.30 U.S. cents, at Tuesday’s close.

Earlier, the Canadian dollar rose to $1.0095 to the U.S. dollar, or 99.05 U.S. cents, which marked its highest level since March 19.

The latest boost for the Canadian dollar was being credited to a familiar combination of weak economic data weighing on the greenback and investors opting to put their money into some of the key commodities that Canada produces and exports.

“We’re still in an environment where it’s bearish for the U.S. dollar,” said David Watt, senior currency strategist at RBC Capital Markets. “When you get bearish for the U.S. dollar and you’re getting commodities going up that provides a little bit of a lift for the Canadian dollar relative to the U.S. dollar.”

Gold prices jumped to a one-week high while the price of oil moved back above $102 a barrel after a strike disrupted operations at a French oil refining hub.

Further moves in the domestic currency are expected to be dictated by factors outside of Canada given the lack of any Canadian data to influence traders.

Canada’s economic calendar is bare until the gross domestic product report for January, due on Monday. But the key piece of data next week is the March jobs report on April 4.

“Canada is just basically being driven by global events,” said Watt. “Until we get clarity over what’s happening with the Canadian economy, fallout from the U.S. slowdown and statements from the Bank of Canada I think the Canadian dollar is just going to be driven by external events.”

BONDS RISE

Canadian bond prices followed the U.S. market higher across the short end of the curve after U.S. data showed an unexpected fall in durable goods orders.

That helped the bond market reclaim a portion of the steep losses suffered earlier this week when an equity-market rally spoiled the flight-to-safety bid that had been in place during recent weeks.

“We had such a massive selloff a few days ago that the neutral stance now is a little rally every day to grab back a bit of that move,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

“Of course Canada is underperforming in that move, which suggests that it’s certainly not a Canada-centric driver.”

The overnight Canadian Libor rate was 3.7200 percent, up from 3.6716 on Tuesday.

Tuesday’s CORRA rate was 3.4784 percent, down from 3.4882 on Monday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.

The two-year bond was up 4 Canadian cents at $102.56 to yield 2.676 percent. The 10-year bond increased 15 Canadian cents to $104.20 to yield 3.460 percent.

The yield spread between the two- and 10-year bonds was 80.5 basis points, up from 77.5 points at the previous close.

The 30-year bond was down 13 Canadian cents at $118.02 to yield 3.953 percent. In the United States, the 30-year treasury yielded 4.295 percent.

The three-month when-issued T-bill yielded 1.87 percent, down from 1.93 percent at the previous close.

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