TORONTO (Reuters) - The Canadian dollar shot to its highest level in nearly six months on Monday, boosted by a jump in equity markets and oil prices as hopes increased that the global economy may be on the road to stabilizing.
The Canadian dollar rallied as high as C$1.1725 to the U.S. dollar, or 85.29 U.S. cents, its highest level since November 10, as crude, a key Canadian export, also pushed above $54 a barrel, its highest settlement of the year.
“Slowly but surely things are looking better and better and I think there’s a little bit of hope in the market that maybe the second half of 2009 is not going to be as bad as everybody feared,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
“As long as equities keep climbing the market feels safer and safer every day.”
The Canadian dollar finished at C$1.1735 to the U.S. dollar, or 85.22 U.S. cents, up from C$1.1859 to the U.S. dollar, or 84.32 U.S. cents, at Friday’s close.
The currency traded in tandem with equity and commodity markets, in line with a recent theme of risk appetite that has seen investors willing to buy riskier assets on the hope that the global economy is getting healthier.
The Toronto Stock Exchange’s S&P/TSX composite index rose more than 3 percent on Monday as resource-issues were lifted by commodity prices. Financials gained on hope that stress tests on the biggest U.S. banks will provide some clues on the depth of the problems in the U.S. financials sector.
Global equities rallied on bank hopes and global data that showed improvement in manufacturing in Europe, China and India, and on positive signs on U.S. home sales and construction.
The Canadian currency benefited as the U.S. dollar weakened on a reversal of safe-haven buying, said Eric Lascelles, chief economics and rates strategist TD Securities.
“It’s the safe haven story. The irony is that the better the U.S. economy looks the worse its currency does,” he said.
With no major Canadian economic data was due on Monday, markets will be watching for employment data, the Ivey Purchasing Managers’ Index, and housing reports later this week.
Canadian bonds were mostly weaker across the curve as money flowed to equity markets on growing risk appetite, denting the appeal of government debt.
“To some extent, I would say it’s the same story,” said Lascelles. However, he added this will be a “very heavy supply week” in both Canada and the U.S.
“That’s always going to weigh on the bond market to some extent,” Lascelles said.
The two-year Canada bond fell 7 Canadian cents to C$100.47 to yield 1.020 percent, while the 10-year ticked 3 Canadian cents higher to C$105.58 to yield 3.101 percent.
The 30-year bond fell 40 Canadian cents to yield 3.865 percent. In the United States, the 30-year Treasury yielded 4.0635 percent.
Canadian bonds outperformed their U.S. counterparts across much of the curve. The 10-year bond yield was 5.6 basis points below the U.S. 10-year yield, compared with 5.3 basis points below on Friday.
Editing by Jeffrey Hodgson