Canadian dollar climbs on record oil, bonds rise
* Canadian dollar rises 0.6 percent against US$
* Strong commodities, weak US$, give support
* Bond prices rise with U.S. market on inflation data
By John McCrank
TORONTO, June 27 (Reuters) - The Canadian dollar rose 0.6 percent against a soft U.S. dollar on Friday, helped by a spike in oil prices above $142 a barrel, which put a bid to the commodity-linked currency.
Canadian bond prices rose along with U.S. Treasuries after tame inflation data supported the idea the U.S. Federal Reserve may not change interest rates for months to come.
At 9:38 a.m. (1338 GMT), the Canadian dollar was at C$1.0066 to the U.S. dollar, or 99.34 U.S. cents, up from C$1.0131 to the U.S. dollar, or 98.71 U.S. cents, at Thursday's close.
The currency rose as high as C$1.0050, its firmest level since June 3, as oil prices surged. On a percentage basis, it was the Canadian dollar's biggest rally since May 21.
"Because the market perceives, rightly or wrongly, the Canadian and U.S. economic cycles to be so intertwined, the two (currencies) tend to move around in parallel, so the break down below C$1.01 was technically quite important," said Adam Cole, head currency strategist at RBC Capital Markets in London.
He said that as long as the commodity backdrop remains positive, the Canadian dollar should continue to probe higher.
The price of U.S. crude oil futures CLc1 hit a record $142.26 a barrel on Friday as commodities rallied in response to falling equities markets.
Canada is the biggest oil supplier to the United States and is a major producer of many key commodities.
The Canadian dollar has slowly ground higher since around the middle of the month, helped by rising commodities and the decision by the Bank of Canada to hold interest rates steady.
But the currency had been unable to mount a major rally, even though the U.S. dollar has looked soft because of a less-than-hawkish statement from the U.S. Federal Reserve this week
Canadian bond prices followed the U.S. market higher after some tame U.S. inflation data. See [ID:nN27381866]
The data showed a surge in U.S. income, but that was largely due to the recent tax rebate checks and is temporary, said Eric Lascelles, chief economic and rates specialist at TD Securities.
"The bigger news is that the core PCE deflator in the U.S. was just a 0.1 (percent), less than expected, so you've got a year over year that is still just two 2.1 (percent). It is not a wild number and it is lending credit to the argument that the Fed would like to be on hold for a while and will be able to, so that is prompting bonds to rally on both side of the border."
Canadian data showed Canadian industrial product prices up 0.6 percent in May from April and raw materials up 3.1 percent, propped up by a sharp rise in petroleum prices. See [ID:nN27365520]
The overnight Canadian Libor rate LIBOR01 was 3.0383 percent, up from 3.0000 percent on Thursday.
Thursday's CORRA rate CORRA= was 2.9938 percent, up from 2.9876 percent on Wednesday. The Bank of Canada publishes the previous day's rate around 9 a.m. daily.
The two-year bond rose 2 Canadian cents to C$101.13 to yield 3.139 percent. The 10-year bond climbed 18 Canadian cents to C$102.38 to yield 3.684 percent.
The yield spread between the two-year and 10-year bond was 54.5 basis points, down from 55.5 at the previous close.
The 30-year bond gained 20 Canadian cents to C$115.70 for a yield of 4.071 percent. In the United States, the 30-year Treasury yielded 4.586 percent.
The three-month when-issued T-bill yielded 2.59 percent, down from 2.60 percent at the previous close. (Editing by Peter Galloway)
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