Canadian dollar gets lift from commodity prices

Thu Dec 27, 2007 4:28pm EST
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 By Frank Pingue
 TORONTO, Dec 27 (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
 "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
 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 the previous close.
 (Editing by Rob Wilson)