TORONTO (Reuters) - The Canadian dollar rose versus the U.S. dollar on Tuesday and closed at its highest level in nearly two months, backed by another surge in oil prices, with the Canadian government's 2008-09 budget having little impact.
Canadian bond prices rebounded from losses in the previous session and ended higher across the curve ahead of U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony on Wednesday and Thursday.
The Canadian dollar closed at US$1.0179, valuing a U.S. dollar at 98.24 Canadian cents, up from US$1.0048, valuing a U.S. dollar at 99.52 Canadian cents, at Monday's close.
Fresh off a third straight losing week, the Canadian dollar is up 3 percent versus the greenback this week, helped by lofty commodity prices and rising equity markets.
The greenback fell to a record low versus a basket of currencies on Tuesday amid worries over the health of the U.S. economy and the prospect of more Federal Reserve interest rate cuts.
"We've seen fundamentals starting to support the Canadian dollar," said Matthew Strauss, senior currency strategist at RBC Capital Markets. "That explains partly why we are seeing a strong performance from the Canadian dollar ... especially against broadly-based weaker U.S. dollar."
The Canadian currency got off to a rough start this year, falling 4.5 percent in the first three weeks, before aggressive U.S. interest rate cuts helped push it up again. It has since made up all the losses and is up 0.9 percent in 2008.
The release of the Conservative government's budget after the official market close did not spark a move in the Canadian dollar, which spent the session in a range of US$1.0089, or 99.11 Canadian cents, to US$1.0219, or 97.85 Canadian cents.
Canada said it will pay down less debt in the next two fiscal years than the C$3 billion it had previously committed to, preferring instead to inject more stimulus into the economy as the prospect of a U.S. recession grows.
The opposition Liberals said they will not vote against the budget, which ensures the survival of Prime Minister Stephen Harper's minority Conservative government.
Comments from Bank of Canada Senior Deputy Governor Paul Jenkins to a House of Commons industry committee on Tuesday did not appear to have much impact on the currency.
Jenkins, speaking ahead of the bank's rate announcement on March 4, said the bank remains focused on keeping inflation under control, despite concern the robust Canadian dollar is hurting the economy.
Canadian bond prices ended higher across the curve as fears about a deteriorating U.S. economy lured investors into the security offered by government debt.
Bond prices rose after U.S. reports showed the expectations of U.S. consumers sank to a 17-year low this month as the job market deteriorated, while costly commodities drove producer price inflation higher in January.
The gains in the bond market may have been kept in check ahead of Bernanke's testimony over the next two sessions.
"U.S. Treasuries and Canadian government bonds are moving alongside one another," said Max Clarke, economist at IDEAglobal in New York. "But for the most part everyone is looking forward to what Fed Chairman Bernanke says tomorrow."
The two-year bond rose 15 Canadian cents to C$101.96 to yield 3.090 percent. The 10-year bond gained 54 Canadian cents to C$101.16 to yield 3.849 percent.
The yield spread between the two- and 10-year bond was 75.9 basis points, down from 72.5 points at the previous close.
The 30-year bond added 84 Canadian cents to C$113.29 to yield 4.206 percent. In the United States, the 30-year treasury yielded 4.655 percent.
The three-month when-issued T-bill yielded 3.23 percent, unchanged from the previous close.
Editing by Peter Galloway