January 2, 2008 / 2:38 PM / in 10 years

Canadian dollar follows commodity prices higher

 By Frank Pingue
 TORONTO, Jan 2 (Reuters) - The Canadian dollar was higher
versus the U.S. currency on Wednesday morning due to a
combination of higher commodity prices and a generally weaker
 Bond prices were little changed given the lack of any
Canadian economic data to consider until later this week.
 At 9:25 a.m. (1425 GMT), the Canadian dollar was at
US$1.0099, valuing each U.S. dollar at 99.01 Canadian cents, up
from US$1.0087, valuing each U.S. dollar at 99.13 Canadian
cents, at Monday's close.
 The gain in the Canadian dollar was pegged mostly to a jump
in U.S. crude oil prices to near $98 a barrel and to spot gold
prices, which hit a 28-year high. Higher gold and oil prices
support the Canadian dollar as Canada is a producer and
exporter of each.
 The Canadian dollar's rise was also enhanced by a weaker
greenback ahead of U.S. data later in the week that could
justify a U.S. Federal Reserve interest rate cut if they come
in weak enough.
 "First and foremost we've seen the U.S. dollar come under
pressure pretty much across the board and that's having a bit
of an impact on (the Canadian dollar)," said George Davis,
chief technical strategist at RBC Capital Markets.
 "Commodity prices are still fairly firm ... so that's
having a bit of a positive impact on the Canadian dollar as
well as we start the new year."
 The move in the Canadian dollar may be slightly exaggerated
given the relatively thinly staffed trading desks in a
holiday-shortened week.
 The Canadian dollar is coming off a banner year in which it
recorded a gain of about 17.5 percent and marched above parity
with the U.S. dollar for the first time in 31 years.
 That gain included a torrid climb to a modern-day high of
US$1.1039 in November before the currency retreated back below
parity later that month.
 In 2008, many experts expect the Canadian dollar to hover
around parity for at least the first quarter before eventually
trickling lower as the U.S. economy firms.
 "As we move through the mid-point of this year we're likely
to see see the U.S. economy scrape along its bottom and based
on that outlook we'll start to see interest rate expectations
in the U.S. shift as the market starts to backs away from a
(U.S.) rate cut scenario," Davis said.
 Canadian bond prices were a touch higher across the curve
given the lack of any domestic data to influence a large move.
 The light interest in bonds carried over from last week as
U.S. data upped the chances of a U.S. Federal Reserve rate cut
later in January.
 The Canadian economic calendar is empty until the release
of the industrial product price and raw materials price indexes
for November on Friday.
 The overnight Canadian Libor rate LIBOR01 was at 4.2166
percent, down from 4.3550 percent on Monday.
 Wednesday's CORRA rate CORRA= was at 4.2344 percent, down
from 4.2595 percent on Monday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond was up 3 Canadian cents at C$100.95 to
yield 3.726 percent. The 10-year bond jumped 4 Canadian cents
to C$100.11 to yield 3.985 percent.
 The yield spread between the two-year and 10-year bond was
25.9 basis points, up from 24.2 basis points at the previous
 The 30-year bond was up 3 Canadian cents at C$115.59 to
yield 4.084 percent. In the United States, the 30-year treasury
yielded 4.455 percent.
 The three-month when-issued T-bill yielded 3.85 percent,
down from 3.86 at the previous close.
 (Editing by Peter Galloway)

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