By John McCrank
TORONTO (Reuters) - The Canadian dollar gained 0.6 percent on the U.S. dollar on Thursday as investors sold greenbacks due to concern about the health of the U.S. financial and money markets.
Canadian bond prices unwound some of their recent gains after a coordinated effort by several central banks to increase liquidity to cash-starved markets.
At 9:24 a.m. EDT, the Canadian dollar was at C$1.0645 to the U.S. dollar, or 94.13 U.S. cents, up from C$1.0688 to the U.S. dollar, or 93.56 U.S. cents, at Wednesday’s close.
The currency hit its strongest point of C$1.0575, or 94.56 U.S. cents, in the overnight session as the U.S. dollar sold off on market fears about the U.S. financial sector.
As the U.S. dollar sold off, a lot of people who had made bets in favor of the greenback strengthening, scrambled to get out, said George Davis, chief technical strategist at RBC Capital Markets.
“It seemed that once we broke below the C$1.0670 level, a lot of people started throwing in the towel and getting out of their long U.S. dollar positions and that just exacerbated the selloff,” he said.
Commodities, which make up about half of Canada’s exports, were also contributing to the stronger Canadian dollar.
Gold XAU= extended its gains by 2 percent to $879.20 an ounce after soaring $90 on Wednesday, its biggest one-day rise ever. U.S. crude CLc1 rose above $100 a barrel, helped by the softer greenback.
A lack of liquidity has been feeding the volatility in the markets.
“There is so much uncertainty right now,” said Davis, referring to the market doubts over the U.S. financial sector. “A lot of people are starting to cut back on their counter-party credit risk and that, basically, has created very illiquid markets, so I think we’re going to see the larger than usual moves continue.”
Global central banks, including the Bank of Canada, joined forced early Thursday to pump billions of dollars into the markets in an attempt to free up bank lending.
Canadian bonds retraced some of their gains from earlier in the week as investors cheered the coordinated global central bank action.
“The fact that central banks that are taking this seriously and are taking strides towards addressing one aspect of the problem, has led to an unwind of the flight to safety effect,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
On the economic data front, Canadian wholesale trade sailed past expectations in July to rise 2.3 percent from June. Analysts, on average, had forecast a gain of 0.5 percent in the month, which was the fifth straight increase. See <ID:nN18480398>
And Canada’s composite leading indicator climbed 0.3 percent in August from July and showed that household demand continues to be the motor of economic growth. Analysts had on average expected no change. July’s number was revised to a gain of 0.1 percent from flat reading previously.
The two-year bond fell 13 Canadian cents to C$100.27 to yield 2.622 percent, while the 10-year dropped 23 Canadian cents to C$106.42 to yield 3.463 percent.
The yield spread between the two-year and 10-year bond was 81.4 basis points, down from 87.5 basis points at the previous close.
The 30-year bond slid 35 Canadian cents to C$117.55 for a yield of 3.969 percent. In the United States, the 30-year Treasury yielded 4.107 percent.
The three-month when-issued T-bill yielded 1.50 percent, down from 1.75 percent at the previous close.
Reporting by John McCrank; Editing by Peter Galloway