* BoC Monetary Policy Report Update sees inflation rising
* Bond prices track U.S. market lower
By John McCrank
TORONTO, July 17 (Reuters) - The Canadian dollar fell to its lowest close this week against the U.S. dollar on Thursday, as oil prices declined, giving a boost to the greenback.
Bond prices fell along with the larger U.S. market in response to some solid U.S. data and a rally in equities.
The Canadian dollar closed at C$1.0068 to the U.S. dollar, or 99.32 U.S. cents, down from C$1.0022 to the U.S. dollar, or 99.78 U.S. cents, at Wednesday’s close.
The currency hung around parity with the greenback for much of the day, rising above the level several times, but then backed off after a sharp drop in oil prices.
The price of U.S. crude oil CLc1 fell $5.31, or 3.95 percent, to $129.29 a barrel on concerns over waning U.S. demand and easing geopolitical tensions between Iran and the West. See [ID:nSP236258]
Canada is a major oil producer, and much of the Canadian dollar’s 60 percent climb between 2002 and 2008 was linked to rising oil prices, although that link has diminished recently, as high oil prices are now viewed as a threat to global growth.
In the United States, high oil prices have been blamed for both weaker growth and higher inflation, so it was not surprising to see the U.S. dollar gain some steam as oil prices fell, said said Steve Butler, director of foreign exchange at Scotia Capital.
“It certainly feels like, as oil is coming off, it’s taking the heat off of the U.S. in general,” he said.
Higher oil and other commodity prices also featured largely in the Bank of Canada’s Monetary Policy Report Update on Thursday. See [ID:nN17317608]
The central bank said soaring oil prices will temporarily push Canada’s headline inflation to an above-target peak of 4.3 percent early next year. It added that core inflation, which strips out volatile prices like energy and food, would stay within the the bank’s 1 percent to 3 percent target range.
The bank also said the commodity boom is more of a positive than a negative for Canada’s economy.
Bond prices tracked the U.S. market lower after stronger than expected data on the U.S. housing and job markets, taking some of the safe-haven bid out of government debt.
“Also, the (bond) market was taking its cue from the equity markets, and in particular, the relief about some of the financial earnings,” said Mark Chandler, fixed income strategist at RBC Capital Markets.
Earnings from the third-largest U.S. bank, JP Morgan (JPM.N), beat market expectations and helped extend a rally in financial stocks sparked by strong results from Wells Fargo & Co (WFC.N) on Wednesday. That boosted the Dow Jones Industrial Average, while the Toronto Stock Exchange closed as softer oil prices dragged down energy issues.
On the domestic data front, Statistics Canada said foreign purchases of Canadian securities rose in May to C$10.72 billion, the highest level since the C$11.75 billion recorded in November 2006, as nonresidents invested heavily in bonds.
Canadian investors bought C$6.09 billion worth of securities abroad, focusing on non-U.S. stocks.
The two-year bond fell 13 Canadian cents to C$101.10 to yield 3.135 percent. The 10-year bond slid 47 Canadian cents to C$103.73 to yield 3.792 percent.
The yield spread between the two-year and 10-year bond was 65.7 basis points, down from 66.2 basis points.
The 30-year bond lost 65 Canadian cents to C$114.10 for a yield of 4.156 percent. In the United States, the 30-year treasury yielded 4.634 percent.
The three-month when-issued T-bill yielded 2.37 percent, up from 2.28 percent at the previous close. (Editing by Rob Wilson)