May 28, 2008 / 1:33 PM / 9 years ago

Dollar gets boost from oil, bonds fall

TORONTO (Reuters) - The Canadian dollar ended its four-day losing skid to end higher against its U.S. counterpart on Wednesday, as oil prices rebounded, giving a boost to the commodity-linked currency.

Domestic bond prices fell along with the larger U.S. market as there was no Canadian data to influence direction.

The Canadian dollar closed at US$1.0102, valuing a U.S. dollar at 98.99 Canadian cents, up from US$1.0067, valuing a U.S. dollar at 99.33 Canadian cents, at Tuesday’s close.

“The big positive for the currency, today at least, has been a bit of a rebound in energy prices again after a couple of soft sessions,” said Shane Enright, currency strategist at CIBC World Markets.

U.S. crude CLc1 bounced from a low of just below $126 a barrel to a high of $131.58, settling up $2.18, or 1.69 percent, at $131.03, fueled by worries over Nigerian production. See <ID:nN28442911>

A lack of domestic data so far this week has limited moves by the Canadian currency, but things pick up on Thursday with balance of payments for the first quarter. That will be followed on Friday by reports on industrial product prices and raw materials prices for April, and gross domestic product data for March and the first quarter.

“Our GDP numbers on Friday will be the interesting thing,” said Enright.

“We are looking for 0.2 percent on the quarter, but there is certainly an outside chance you get a negative quarter of growth there. And, if we did see that, that would probably take a little bit of the steam out of a potential Canada rally.”

Analysts surveyed by Reuters expect, on average, GDP growth of 0.3 percent in the first quarter.

BOND PRICES FALL

Canadian bond prices headed lower, along with the U.S. market, after a better than expected reading on U.S. durable goods orders, a key barometer of business investment spending.

The headline number showed U.S. durable goods orders fell 0.5 percent, beating expectations for a 1 percent drop. Non-defense capital goods orders, excluding aircraft, a closely watched proxy for business spending, rose 4.2 percent, casting some doubt on some claims that the U.S. is in a recession.

While Canadian bonds sold off, they did manage to outperform U.S. treasuries on the day.

“We can perhaps draw a dissonance between Canada and the U.S. on the supply front today, which is to say we had a Canadian bond auction and a U.S. bond auction and while the Canadian bond auction was very well received, the U.S. auction was not,” said Eric Lascelles, chief economics and rates specialist at TD Securities.

“You saw a pretty good appetite out there for Canadian supply which gives you the sense there is a fair tone in the Canadian market.”

The two-year bond fell 7 Canadian cents to C$101.27 to yield 3.089 percent. The 10-year bond slid 20 Canadian cents to C$102.35 to yield 3.691 percent.

The yield spread between the two- and 10-year bond was 60.2 basis points, down from 68.2 at the previous close.

The 30-year bond shed 20 Canadian cents to C$114.75 for a yield of 4.123 percent. In the United States, the 30-year treasury yielded 4.709 percent.

The three-month when-issued T-bill yielded 2.71 percent, unchanged from the previous close.

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