* C$ hits highest level since Sept. 17
* Higher commodity backdrop helps rally
* Bonds a touch lower across curve
By Frank Pingue
TORONTO, Oct 6 (Reuters) - The Canadian dollar rose to its highest level versus the U.S. currency in nearly two weeks on Tuesday morning given the backdrop of higher prices for key domestic exports like oil and gold.
A media report, later denied, that Gulf Arab states were in talks to abandon the U.S. dollar in oil trade, weighed on the greenback and gave a boost to oil and gold. [ID:nSYD421795]
Oil prices rose more than $1 to above $71 after the report, while the price of gold hit an 18-month high. [O/L] [GOL/] The Canadian dollar's moves are often influenced by prices for the two commodities.
That helped the Canadian currency rise to C$1.0631 to the U.S. dollar, or 94.06 U.S. cents, its highest level since Sept. 17. It backed off slightly but managed to hold well above the previous session's close.
By 7:35 a.m. (1135 GMT), the Canadian unit was at C$1.0635 to the U.S. dollar, or 94.03 U.S. cents, up from C$1.0701 to the U.S. dollar, or 93.45 U.S. cents, at Monday's close.
"Really it's another run (lower) on the U.S. dollar and that sent commodities higher and that sent the Canadian dollar up a little bit," said Steve Butler, director of foreign exchange trading at Scotia Capital.
"It would be nice to get a close below C$1.0650 because that will keep momentum going a little bit and signal that we are ready for some more Canadian dollar strength."
The Canadian dollar's performance will likely continue to be driven by events outside of Canada until later in the week when domestic housing starts data is released on Thursday. The key report for the week, however, is Friday's release of September jobs data.
Canadian bond prices were a touch lower across the curve, taking their cue from the bigger U.S. Treasury market ahead of a sale of $3 billion in U.S. 3-year bonds. [US/O]
(Editing by Chizu Nomiyama)