TORONTO (Reuters) - The Canadian dollar rose on the back of a modest bounce in commodity prices and an economic report out of the United States that suggested a bottom to the U.S. housing crisis may be in sight.
Domestic bond prices fell as equity prices rallied, lessening the safe-haven appeal of government debt.
The Canadian dollar closed at C$1.0179 to the U.S. dollar, or 98.24 U.S. cents, up from C$1.0234 to the U.S. dollar, or 97.71 U.S. cents, at Thursday's close.
The currency had fallen as low as C$1.0309 to the U.S. dollar, or 97.00 U.S. cents, overnight, its lowest level since January 23.
Its rebound followed a 3.6 percent drop against the greenback last week as commodity prices tumbled from recent peaks.
The action in the markets last week was exaggerated by thin trading due to Friday's Easter holiday. And, with much of Europe closed for Easter Monday, trading was once again whippy.
Gains in commodity prices early in the session helped boost demand for Canadian dollars.
"The Canadian dollar bulls took heart from a pause in the commodity correction," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
Around 40 percent of Canada's economy is export oriented, and commodities make up 40 to 50 percent of Canadian exports.
U.S. crude oil prices started out strongly before fading as the session wore on, but commodities as a group managed to eke out a modest gain.
The Reuters-Jefferies CRB Index, which tracks 19 commodity futures, rose 0.5 percent from Thursday's five-week low.
Another factor helping give the Canadian dollar a bounce was a report out of the United States showing existing home sales rose 2.9 percent in February, marking the first month-on-month rise in seven months.
The United States takes in over three-quarters of Canadian exports, and fears of a deep U.S. recession have made investors wary of making big bets on the Canadian dollar.
The stronger housing numbers may signal a less severe U.S. downturn, said Strauss.
"It's giving the market hope that maybe we are beginning to see a bottom forming in the decline of the U.S. housing market."
The news wasn't all good though, as U.S. home prices saw their biggest year-on-year drop on record, at 8.2 percent, dating back to 1968.
Canadian bond prices slumped as a rally in equities markets helped unwind a flight-to-safety bid that had driven bond prices higher in recent weeks.
The equities rally was led by financials after JP Morgan Chase raised its buyout offer for Bear Stearns to about $10 a share from $2.
There were no Canadian economic data releases to influence bond market moves. January retail sales data is due on Tuesday and is expected to show a 1.2 percent rise after a 0.6 percent climb in December.
The two-year bond fell 29 Canadian cents to C$102.47 to yield 2.732 percent. The 10-year bond dropped 60 Canadian cents to C$103.71 to yield 3.523 percent.
The yield spread between the two- and 10-year bonds was 79.1 basis points, down from 88.8 points at the previous close.
The 30-year bond slipped 59 Canadian cents to C$117.64 to yield 3.973 percent. In the United States, the 30-year treasury yielded 4.367 percent.
The three-month when-issued T-bill yielded 1.68 percent, up from 1.60 percent at the previous close.