January 5, 2009 / 10:18 PM / in 12 years

CANADA FX DEBT-Higher oil price helps boost C$

 * C$ tops 84 U.S. cents as oil jumps 5 percent
 * Closes at highest level in two weeks
 * Bond prices largely lower as supply expected to swell
 By Jennifer Kwan
 TORONTO, Jan 5 (Reuters) - The Canadian dollar firmed
against the U.S. currency on Monday to close at its highest
level in two weeks, helped by a rise in the price of oil as
tension in the Middle East raised supply concerns.
 Bonds were lower across the curve as investors' appetite
for risk returned, boosting the Toronto Stock Exchange
.GSPTSE to a higher close after an early retreat.
 The Canadian dollar finished at C$1.1900 to the U.S.
dollar, or 84.03 U.S. cents, up from Friday's close of C$1.2156
to the U.S. dollar, or 82.26 U.S. cents.
 At one point the loonie hit C$1.1867 to the U.S. dollar, or
84.27 U.S. cents, its highest level since mid-December.
 Oil CLc1 settled $2.47, or 5.33 percent, higher at $48.81
a barrel as Israel's ground and air assault on Gaza raised
Mideast tensions and a dispute over natural gas between Russia
and Ukraine fanned supply fears. [ID:nSP343684]
 Fluctuations in the price of oil -- which has risen from
around $35 a barrel since Israel launched its Gaza offensive on
Dec. 27 --- often sway the currency as Canada is a major
producer and exporter.
 While higher oil prices helped the currency's rise, the
firmness in the Canadian dollar was also due to "flow-driven
trade," said Shaun Osborne, chief currency strategist at TD
 "I don't think anyone has a very strong conviction on where
these markets are going," he said. "People are keeping the
powder try, if you like, until the trends become a little bit
more apparent."
 On Monday, the Canadian dollar traded in a range of
C$1.2174 to the U.S. dollar, or 82.14 U.S. cents, to C$1.1867,
or 84.27 U.S. cents, according to the Bank of Canada.
 The currency has been largely rangebound in recent weeks,
after falling more than 18 percent in 2008 as plunging
commodity prices in the second half of the year took their
 Government bond prices turned lower after earlier strength
as the TSX rebounded to extend its gains for a fifth straight
 With no major data in Canada on Monday, domestic bonds
tracked the big U.S. Treasury market, which saw longer bonds
fall on expectations of swelling supply. [ID:nN05378067]
 In Canada, the prospect of increased issuance also weighed
on prices, as well as the return of investors to equity
markets, said Mark Chandler, fixed income strategist at RBC
Capital Markets.
 "The reason why bond markets have been weaker in general,
as well, is that we're getting a little bit of risk appetite
returning," said Chandler.
 Whether that trend continues, however, remains to be
 The two-year bond fell 2 Canadian cents to C$102.98 to
yield 1.158 percent, while the 10-year bond dropped 55 Canadian
cents to C$111.10 to yield 2.892 percent.
 The yield spread between the two-year and 10-year bond was
150 basis points, versus 167.5 at the previous close.
 The 30-year bond fell C$2.00 to C$123.95 to yield 3.640
percent. In the United States, the 30-year treasury yielded
2.9951 percent.
 (Reporting by Jennifer Kwan; editing by Rob Wilson)

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