Canadian dollar gets a boost from oil prices

Tue Aug 26, 2008 9:59am EDT
 
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 * Currency rises on the crosses, helped by rate outlook
 * Bond prices up slightly ahead of central bank speech
 By John McCrank
 TORONTO, Aug 26 (Reuters) - The Canadian dollar rose 0.5
percent against a generally stronger U.S. dollar on Tuesday,
supported by a rebound in oil prices.
 Domestic bond prices, with no Canadian data to key off,
were up slightly ahead of a speech by Bank of Canada Deputy
Governor David Longworth.
 At 9:30 a.m. (1330 GMT), the Canadian dollar was at
C$1.0460 to the U.S. dollar, or 95.60 U.S. cents, up from
C$1.0509 to the U.S. dollar, or 95.16 U.S. cents, at Monday's
close.
 The currency had fallen to a low of C$1.0563 to the
greenback, or 94.67 U.S. cents, as oil prices weakened below
$114 a barrel, but then rallied as oil bounced back on fears a
hurricane could disrupt U.S. offshore oil output.
See:[ID:nSP131495]
 Oil is seen as important to Canada's terms of trade as
Canada is the biggest supplier of oil to the United States, and
its oil sands contain the biggest deposit of crude outside the
Middle East.
 The Canadian dollar was also stronger against most other
major currencies, especially those from Australia, New Zealand,
Britain and the euro zone.
 David Watt, senior currency strategist at RBC Capital
Markets, said the Canadian dollar was pulled along by a U.S.
dollar rally overnight, which was helped by the U.S. interest
rate outlook.
 "The outlook for the U.S. economy isn't good, but the (U.S.
Federal Reserve) already cut interest rates, whereas we've got
deteriorating outlooks in other nations and we're talking about
how soon and how quickly they will be cutting interest rates,"
he said.
 Like the Fed, the Bank of Canada is also ahead of the curve
on rate cuts, having lopped off 150 basis points from its key
lending rate, to 3 percent, since late last year.
 This week will be a quiet one for domestic data, with the
main event coming on Friday, when gross domestic product for
the second quarter will be released. That will also be the last
major piece of data before the Bank of Canada makes its Sept. 3
rate announcement.
 Analysts, on average, expect second-quarter GDP to come in
at 0.7 percent, according to a Reuters poll.
 In the first quarter, GDP shrank by an annualized 0.3
percent. The technical definition of a recession is two
back-to-back negative quarters.
 BOND PRICES UP SLIGHTLY
 Bond prices were up slightly ahead of a speech by Bank of
Canada Deputy Governor David Longworth on the central bank's
response to financial turbulence.
 "Markets may be awaiting comments from the central bank in
terms of their view on the economy, whether they've altered
their outlook on inflation with lower oil prices, and whether
they indicate increased concerns about growth, in the wake of
some disappointing numbers," said Paul Ferley, assistant chief
economist at Royal Bank of Canada.
 Longworth will speaking in Kingston, Ontario, at 12:15
p.m.
 The overnight Canadian LIBOR rate LIBOR01 was 3.0733
percent.
 The two-year bond rose 1 Canadian cent to C$99.73 to yield
2.874 percent. The 10-year bond added 7 Canadian cents to
C$105.62 to yield 3.562 percent.
 The yield spread between the two-year and 10-year bond was
69.8 basis points, up from 68.9 at the previous close.
 The 30-year bond climbed 8 Canadian cents to C$116.63 for a
yield of 4.019 percent. In the United States, the 30-year
treasury yielded 4.404 percent.
 The three-month when-issued T-bill yielded 2.52 percent
unchanged from the previous close.
 (Editing by Scott Anderson)