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TORONTO (Reuters) - The Canadian dollar rose on Thursday but closed just shy of a five-week high due largely to a rise in commodity prices after news that Pakistani opposition leader Benazir Bhutto had been assassinated.
Domestic bond prices, with no Canadian data to digest until next week, finished mixed despite rising earlier in the session alongside the bigger U.S. market.
The Canadian dollar closed at US$1.0183, valuing each U.S. dollar at 98.20 Canadian cents, up from US$1.0152, or 98.50 Canadian cents, from Monday's official close given by the Bank of Canada ahead of the holidays.
But the move in the Canadian dollar did not garner too much attention given the thin market conditions, which often lead to exaggerated price moves.
News of Bhutto's death rattled markets and boosted gold prices to a one-month high and helped send oil prices up more than $1 to over $97 a barrel. The prices later eased from their intraday peaks, but added support to the Canadian currency since Canada is a major producer and exporter of both commodities.
"It raised concerns about potential political instability spreading to the Middle East and concern about supply," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "So that's contributing to the strengthening in oil prices, which in turn is offering support for the Canadian dollar."
Also helping to support the currency was a drop in the greenback, which fell after U.S. economic data showed weak durable goods orders in November as well as an unexpected drop in jobless claims last week.
Thursday's rise helped to extend the Canadian dollar's latest rally, which has seen the currency climb about 4 percent in the past two weeks.
"It's just an extension of the previous week's trading activity and a market generally prepping itself for the new year," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco.
In September, the Canadian dollar pushed past parity with the U.S. dollar for the first time since 1976 and then went on to reach a modern-day high of US$1.1039 in November, before sliding back.
Canadian bond prices ended mostly higher, despite spending much of the session in negative territory, as data from the United States came in weaker than expected and upped the chances of a Federal Reserve rate cut next month.
But the gains were capped and the long end of the curve fell as higher oil and gold prices convinced some dealers that Canada will steer relatively clear of any weakness coming out of the United States.
"Maybe there's a sentiment that even if the U.S. does move lower, factors like high commodity prices may shield some of that weakness from spreading into Canada," said Ferley.
The two-year bond rose 2 Canadian cents to C$100.72 to yield 3.855 percent. The 10-year bond was up 2 Canadian cents at C$99.28 to yield 4.092 percent.
The yield spread between the two-year and 10-year bond was 23.7 basis points, down from 22.8 basis points at the previous close.
The 30-year bond ended down 13 Canadian cents at C$114.04 to yield 4.167 percent. In the United States, the 30-year treasury yielded 4.601 percent.
The three-month when-issued T-bill yielded 3.90 percent, unchanged from the previous close.
Editing by Rob Wilson