Canadian dollar benefits from strong oil, weak US$

Fri Jun 27, 2008 4:36pm EDT
 
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 * Canadian dollar up on weak US$, record high oil price
 * Currency ends week up 0.6 percent
 * Bond prices rise with U.S. market on inflation data
 By John McCrank
 TORONTO, June 27 (Reuters) - The commodity-linked Canadian
dollar closed higher against a sagging U.S. dollar on Friday,
helped by a spike in oil prices to nearly $143 a barrel.
 Canadian bond prices ended mixed as Canadian stocks
rallied, hurting front end bond prices.
 The Canadian dollar closed at C$1.0106 to the U.S. dollar,
or 98.95 U.S. cents, up from C$1.0131 to the U.S. dollar, or
98.71 U.S. cents, at Thursday's close.
 For the week, the Canadian dollar ended up 0.6 percent,
extending its 1.2 percent gain from last week.
 The currency rose as high as C$1.0050 in the morning, its
firmest level since June 3, as oil prices surged, but gave back
much of the gain as investors squared their books ahead of the
month and quarter end.
 "A bit of a topsy-turvy day," said Steve Butler, director
of foreign exchange trading at Scotia Capital.
 "People are looking at what's happening with oil and with
gold, but a lot of that gets washed away with these month- and
quarter-end flows," he said.
 The price of U.S. crude oil futures CLc1 hit a record
$142.99 a barrel on Friday as commodities rallied in response
to drops in many major equities markets. See [ID:nSYD129383]
 Canada is the biggest oil supplier to the United States and
is a major producer of many key commodities.
 While large moves in the price of oil often influence the
direction of the Canadian dollar, investors have been less
willing to buy the currency on the latest oil price rally.
 Butler said that was because there are a lot of concerns
about the impact the high oil prices could have on the economy.
He added that while energy-rich Western Canada is reaping the
rewards of high the oil prices, the manufacturing centers in
Central Canada are struggling due to the U.S. financial
slowdown.
 The high energy prices were seen adding to the woes of the
U.S. economy and the U.S. dollar weakened in response.
 BONDS MIXED
 Canadian bond prices were mixed in thin trading, with the
short end diverging from the rally in the larger U.S. market,
which was boosted by a flight to quality bid.
 "The front end of the bond markets reflect fight-to-quality
type of cash flows and with the U.S. (stock) market down, that
would explain why their (U.S.) front end bond prices are doing
better than ours," said Sheldon Dong, fixed income strategist
at TD Securities.
 Concerns about the effects of the higher energy prices
dragged the Dow Jones industrial average down by 106.91 points.
Meanwhile, the key Toronto stock index, which is heavily
weighted toward energy stocks, staged a rally to end the day up
63.07 points.
 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 two-year bond fell 5 Canadian cents to C$101.06 to
yield 3.174 percent. The 10-year bond rose 2 Canadian cents to
C$102.22 to yield 3.705 percent.
 The yield spread between the two-year and 10-year bond was
53.1 basis points, down from 55.5 at the previous close.
 The 30-year bond gained 26 Canadian cents to C$115.76 for a
yield of 4.068 percent. In the United States, the 30-year
Treasury yielded 4.527 percent.
 The three-month when-issued T-bill yielded 2.57 percent,
down from 2.60 percent at the previous close.
 (Editing by Peter Galloway)