TORONTO (Reuters) - The Canadian dollar rallied more than a cent versus a weaker U.S. dollar on Wednesday due to record high oil prices and weaker-than-expected economic data that rattled the greenback.
Canadian bond prices recouped early losses and ended higher across the curve as investors fled the stock market in favor of more secure government debt amid economic data that added to a darkening global outlook.
The Canadian dollar closed at C$1.0134 to the U.S. dollar, or 98.68 U.S. cents, comfortably above the C$1.0228 to the U.S. dollar, or 97.77 U.S. cents, that it fell to in the overnight session.
The Bank of Canada did not provide an official closing rate for the Canadian dollar on Tuesday because of the Canada Day holiday. The currency closed at C$1.0197 to the U.S. dollar, or 98.06 U.S. cents, on Monday.
Spurring the Canadian dollar’s rise was an economic report that showed the U.S. private sector shed more jobs than expected in June. The data sparked a U.S. dollar selloff and paved the way for the Canadian currency to rally from its overnight low.
Just after the midway point of the North American session the commodity-linked Canadian currency rose to C$1.0090 to the U.S. dollar, or 99.11 U.S. cents, as oil rose and eventually hit a record high above $144 a barrel.
The surge in oil prices followed a government report that showed U.S. crude oil inventories fell last week to their lowest level since January.
“It’s been a weaker U.S. dollar combined with record high oil prices that is proving upside support for the Canadian dollar,” said Tyson Wright, senior foreign exchange trader at Custom House, a currency services firm in British Columbia.
With no major Canadian data due out for the rest of the week, Wright said the Canadian currency will trade on the back of the European Central Bank rate decision and the monthly U.S. report on the labor market, both of which are due on Thursday.
Market conditions are expected to become more illiquid as the week goes on since U.S. financial markets will be closed on Friday for Independence Day and traders may leave their desks early for an extended weekend.
Canadian bond prices clawed back from losses suffered early in the session and finished mostly higher along with the bigger U.S. Treasury market ahead of the U.S. government’s monthly report on the labor market.
The private report by ADP Employer Services, which showed U.S. employers cut 75,000 jobs in June, likely points to bad news in the government report, according to Mark Chandler, fixed income strategist at RBC Capital Markets.
Chandler also said a 432-point plunge on the Toronto Stock Exchange’s main index on Wednesday likely added to the higher bond prices.
The only piece of data still due out in Canada this week will be Friday’s Ivey Purchasing Managers Index for June, which is prone to sharp moves since it is not seasonally adjusted.
Ivey data is expected to show that purchasing activity in the Canadian economy rose in June but at a slightly slower pace than in the previous month.
The two-year bond rose 4 Canadian cents to C$100.96 to yield 3.226 percent. The 10-year bond dropped 8 Canadian cents to C$101.87 to yield 3.751 percent.
The yield spread between the two-year and 10-year bond was 52.5 basis points, up from 49.7 at the previous close.
The 30-year bond ended up 20 Canadian cents at C$115.65 for a yield of 4.073 percent. In the United States, the 30-year Treasury yielded 4.510 percent.
The three-month when-issued T-bill yielded 2.52 percent, down from 2.57 percent at the previous close.
Editing by Peter Galloway