TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday as record high oil prices helped it bounce off a one-month low while dovish minutes from a U.S. Federal Reserve meeting added to the rise.
Domestic bond prices slipped on the short end of the curve as investors felt comfortable moving into riskier investments like equities.
The Canadian dollar closed at C$1.0130 to the U.S. dollar, or 98.72 U.S. cents, up from C$1.0171 to the U.S. dollar, or 98.32 U.S. cents, at Tuesday’s close.
Lofty oil prices, a weaker greenback and Fed minutes that warned of more risks to U.S. economic growth joined forces to help lift the Canadian dollar from a session low of C$1.0199 to the U.S. dollar, or 98.05 U.S. cents.
Canada is a major energy producer and exporter and the currency often follows the direction of oil prices, which rose on Wednesday to a record high of $101.32 a barrel.
“The U.S. dollar sold off across the board,” said David Powell, currency analyst at IDEAglobal in New York. “Plus the rise in oil has helped (the Canadian dollar) but it’s really something being seen across the market.”
Powell also said the minutes from the Fed’s most recent policy-setting meeting, which lowered its growth forecast for 2008, added momentum to the greenback’s slide.
The late-day rally in the Canadian dollar fell short of sending the currency through its overnight high of C$1.0106, or 98.95 U.S. cents, when overseas investors reacted to the rise in oil prices on Tuesday.
Economic data released during the session had little impact on the currency as investors awaited domestic December retail sales data, due on Friday, since it will offer some insight as to how resilient consumer demand is going to be in 2008.
Canada’s composite leading indicator unexpectedly climbed 0.2 percent in January, while another report showed foreigners returned to Canada’s stock market in December after four months of decline.
With no key domestic data to consider, Canadian bond prices largely followed the move in the bigger U.S. Treasury market, slipping on the short end of the curve and eking out a gain on the long end.
The two-year bond fell 8 Canadian cents to C$101.88 to yield 3.151 percent. The 10-year bond rose 2 Canadian cents to C$100.55 to yield 3.928 percent.
The yield spread between the two- and 10-year bond was 77.7 basis points, down from 81.6 basis points at the previous close.
The 30-year bond gained 32 Canadian cents to C$112.32 to yield 4.259 percent. In the United States, the 30-year treasury yielded 4.605 percent.
The three-month when-issued T-bill yielded 3.25 percent, unchanged from the previous close.
Editing by Rob Wilson