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TORONTO (Reuters) - The Canadian dollar rose nearly one U.S. cent against the greenback on Monday as the price of crude oil rallied and global equity markets kicked off 2010 on an upbeat note, increasing demand for riskier assets.
The unit rose to its highest level since last October, peaking at 96.61 U.S. cents, alongside equity markets, which got a boost after reassuring manufacturing data in the U.S. and China lifted confidence in the global economic recovery.
Data showed the U.S. manufacturing sector grew at its fastest pace in nearly four years in December, its fifth consecutive month of expansion, adding to hopes of economic improvement in 2010.
"Equity markets are all green today so it's good old risk on. People are trying to diversify from the U.S. dollar into some sexier investments," said J.P. Blais, vice president of foreign exchange products at BMO Capital Markets.
Oil, a key Canadian export, climbed above $81 a barrel on Monday, the highest in nearly 15 months, boosted in part as frigid U.S. weather boosted demand for heating fuel.
The Canadian dollar finished at C$1.0414 to the U.S. dollar, or 96.02 U.S. cents, up from a December 31 finish at C$1.0510 to the U.S. dollar, or 95.15 U.S. cents.
The currency's strength came after the greenback fell broadly as gains in stock and commodity prices lured investors to seek out more risk.
The U.S. dollar also dropped as traders locked in gains ahead of key U.S. jobs data on Friday, which could set the tone for the currency's near term direction.
"We're in the new year with probably fund managers sitting on a whole bunch of cash and looking for new, exciting trade ideas. I think the Canadian dollar is an attractive play right now," said Blais.
The move extends the 2009 rally in which the Canadian dollar closed up 15.9 percent versus the greenback, rebounding from a more than 18 percent drop in 2008.
Canadian bond prices were largely flat at the short end, tracking U.S. Treasuries, but slightly lower at the long end.
"Generally, we had a steepening action in the U.S. There was firmer data in the U.S., equity markets are firmer and that may have been some of the pressure at the long end," said Mark Chandler, fixed income strategist at RBC Capital Markets.
The two-year government bond ticked up 5 Canadian cents at C$99.62 to yield 1.453 percent, while the 30-year bond dropped 45 Canadian cents lower to C$114.65 to yield 4.104 percent.
Canadian government bonds mostly underperformed U.S. issues, with the Canadian 10-year yield 22 basis points below its U.S. counterpart, compared with 23 basis points on December 31.
Editing by Jeffrey Hodgson