Canadian dollar rises as Gustav lifts oil prices
* Currency gains 0.2 percent versus greenback
* Gustav eyes U.S. oil installations in the Gulf of Mexico
* Bond prices end mixed ahead of month's end
By John McCrank
TORONTO, Aug 27 (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday, getting support from higher oil prices as Tropical Storm Gustav looked set to strengthen as it churned toward oil and gas platforms in the Gulf of Mexico.
Domestic bond prices were mixed in thin trading ahead of the month's end.
The Canadian dollar closed at C$1.0468 to the U.S. dollar, or 95.53 U.S. cents, up from C$1.0484, or 95.38 U.S. cents, at Tuesday's close.
Canada's dollar, which has been linked increasingly to oil prices as the country's prominence as an energy producer has grown, rose as high as C$1.0427 to the U.S. dollar early in the session, but was unable to hang onto all its gains as investors bought greenbacks, taking advantage of the lower entry price.
The Canadian currency still managed to gain 0.2 percent against its U.S. counterpart.
"A better bid to crude and correlated markets in general is giving the Canadian dollar a bit of a boost heading through the afternoon," Jack Spitz, managing director of foreign exchange at National Bank Financial, said.
The price of U.S. crude oil CLc1 rose for the third day in a row, to more than $118 a barrel, as weather forecasters warned that Tropical Storm Gustav could strengthen into a major hurricane and chart a course through the Gulf of Mexico, home to a quarter of U.S. oil production. See [ID:nN27485768]
The next piece of Canadian economic data is due Thursday, with the release of the balance of international payments for the second quarter. But the main report for the week comes Friday with the gross domestic product for the second quarter.
"While we think that growth will remain ever so slightly in the black, we wouldn't rule out a back-to-back negative print that would meet the definition of a technical recession," Derek Holt, economist at Scotia Capital, said in a note.
Analysts, on average, expect second-quarter GDP to come in at 0.7 percent, according to a Reuters poll. In the first quarter, the economy shrank by an annualized 0.3 percent.
The GDP figure is the last major piece of data before the Bank of Canada announces its interest rate decision Sept. 3.
BOND PRICES MIXED
Canadian bond prices were mixed, rising on the short end, partly due to some traders betting the Bank of Canada would cut its key lending rate before the end of the year, Sheldon Dong, fixed income strategist at TD Waterhouse Private Investment, said.
"Another negative print (in GDP) would really raise the odds of the Bank of Canada cutting," he said. No move is expected in September, but an October rate cut is almost fully priced into the market, Dong said.
The long end was down, due in part to supply pressure, as Hydro Quebec offered a $500 million issue due in 2045.
Trading was very thin, which exaggerated moves.
The two-year bond rose 13 Canadian cents to C$99.96 to yield 2.768 percent. The 10-year added 10 Canadian cents to C$105.90 to yield 3.528 percent.
The yield spread between the two-year and 10-year bond was 80.4 basis points, up from 79.5 at the previous close.
The 30-year bond fell 8 Canadian cents to C$116.79 for a yield of 4.01 percent. In the United States, the 30-year treasury yielded 4.384 percent.
The three-month when-issued T-bill yielded 2.45 percent, down from 2.49 percent at the previous close.
(Editing by Jeffrey Jones)
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