March 30, 2010 / 8:59 PM / 7 years ago

Canadian dollar up for 2nd day, bonds fall; eyes on GDP

TORONTO (Reuters) - The Canadian dollar hit a one-week high against the U.S. dollar on Tuesday, helped by a positive tone in oil and stock markets, but stayed rigidly within recent ranges ahead of monthly economic growth data.

The Canadian dollar, along with its commodity-linked currency cousins, the Australian and New Zealand dollars, were strong performers overnight on the back of firmer base metal prices and a slight advance in the price of oil, a major Canadian export.

The Canadian dollar ended at C$1.0195 to the U.S. dollar, or 98.09 U.S. cents, up from C$1.0207 to the U.S. dollar, or 97.97 U.S. cents, at Monday's close.

It reached a session high at C$1.0157 to the U.S. dollar, or 98.45 U.S. cents, but handed back some gains ahead of Wednesday's seasonally adjusted gross domestic product figures for January.

Economists expect a 0.5 percent gain in GDP, which would add weight to the view that the Canadian economy is in recovery.

"The big news for Canada this week is tomorrow's GDP report," said Doug Porter, deputy chief economist at BMO Capital Markets.

"It would actually be the fifth month in a row of solid gains. With revisions, we actually ended last year at quite a nice clip, and it looks like, if anything, the economy gathered steam at the start of the year."

The data could help push the Canadian dollar higher and toward testing the near-parity levels against the greenback it visited about two weeks ago. Domestic factors, while strong, have largely taken a backseat to global risk sentiment in recent sessions.

On Tuesday, for a second session, the "ever-familiar risk theme" was generally guiding currencies higher, said George Davis, chief technical analyst at RBC Capital Markets.

"Right now at least, the market seems to be a little bit more amenable or positive toward risk and that's benefiting the Canadian dollar," he said.

BOND PRICES DIP IN "SLOW GRIND"

Canadian bond prices eased with global equity markets on the rise and data that showed U.S. home prices were up for an eighth straight month.

But the main drag came from the mounting view that the Bank of Canada will raise its key interest rate this year, and mostly with the first hike coming in the summer.

"It's a slow grind in Canada as the market slowly but surely braces for the inevitable Bank of Canada tightening," said Porter.

The two-year government bond fell 4 Canadian cents to C$99.56 to yield 1.734 percent, while the 10-year bond lost 8 Canadian cents to C$101.30 to yield 3.582 percent.

Canadian bonds outperformed their U.S. counterparts in the short end of the curve, but underperformed in the belly and further in the long end. The difference between 10-year yields narrowed 1.3 basis points to 27.9 basis points.

Reporting by Ka Yan Ng; Editing by Frank McGurty

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