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TORONTO (Reuters) - The commodity-linked Canadian dollar rose against the U.S. dollar on Monday, boosted by record oil prices.
Domestic bond prices, with no domestic data to influence direction, rose along with the larger U.S. market.
At 9:20 a.m. EDT, the Canadian dollar was at C$1.0148 to the U.S. dollar, or 98.54 U.S. cents, up from C$1.0163 to the U.S. dollar, or 98.40 U.S. cents, at Friday's close.
The currency had risen as high as C$1.0067 to the greenback, or 99.33 U.S. cents, on record prices for oil, a key Canadian export, but was unable to hang on to the gains.
U.S. crude oil hit a record high of $119.93 a barrel on supply disruptions ahead of the U.S. summer driving season.
Much of the Canadian dollar's 60 percent rise since 2002 has been linked to rising oil prices.
But the currency's response to the latest surge in crude prices has been muted.
"Oil prices at these levels are a net positive for Canada, however, I think what the market is also picking up on is that in the near term, there could be a very large negative, because oil at $120 only worsens the contraction in the American economy," said Camilla Sutton, currency strategist at Scotia Capital.
Prices for oil are up nearly 25 percent since the start of the year, whereas the Canadian dollar is down over 2 percent.
But Sutton said the Canadian dollar would likely be much weaker without the support of robust energy prices, and that once the American economy begins to recover, the benefits to Canada's currency will likely be seen.
"In the long run, it will still end up being a net positive for Canada," she said.
Domestic data due this week include the February gross domestic product report on Wednesday, along with industrial product price and raw materials price indexes for March.
But much of the market's attention will be focused south of the border, where the U.S. Federal Reserve is set to make a decision on interest rates after a two-day policy meeting that ends on Wednesday.
Most market watchers expect the Fed to cut its key lending rate by 25 basis points to 2 percent.
Canadian bond prices rose along with the larger U.S. market, as investors squared positions ahead of a busy week for U.S. economic data.
"Even if the Fed matches market expectations and reduces rates just 25 basis points, I think there's some belief that the activity indicators that are more forward looking, like the consumer confidence report and the employment report on Friday, will show that the real side of the economy is still struggling mightily," said Mark Chandler, fixed income strategist at RBC Capital Market.
The overnight Canadian Libor rate was at 3.0500 percent, unchanged from Friday.
The two-year bond rose 8 Canadian cents to C$101.75 to yield 2.882 percent. The 10-year bond climbed 9 Canadian cents to C$101.97 to yield 3.741 percent.
The yield spread between the two- and 10-year bonds was 85.8 basis points, up from 83.2 points at the previous close.
The 30-year bond added 24 Canadian cents to C$113.36 to yield 4.200 percent. In the United States, the 30-year Treasury yielded 4.596 percent.
The three-month when-issued T-bill yielded 2.60 percent, unchanged from the previous close.
Editing by Bernadette Baum