TORONTO (Reuters) - Record high oil prices helped the Canadian dollar rise as the U.S. dollar weakened on Monday, while domestic bond prices retreated along with the larger U.S. market.
At 9:20 a.m., the Canadian dollar was at C$1.0036 to the U.S. dollar, or 99.64 U.S. cents, up from C$1.0049 to the U.S. dollar, or 99.51 U.S. cents, at Friday’s close.
“The (U.S.) dollar seemed to sell off after we got the Bank of America (BAC.N) results,” said Adam Cole, head currency strategist at RBC Capital Markets in London.
The No. 2 U.S. bank saw its income fall 77 percent to $1.21 billion, hurt by writedowns and rising credit losses.
That sent the greenback lower as investors fretted that the fallout from the global credit crisis may not be over.
However, the commodity-linked Canadian dollar got a boost from record oil prices.
U.S. crude oil prices reached a record peak above $117 a barrel on supply concerns ahead of the peak summer driving season. Much of the Canadian dollar’s 60 percent rise since 2002 has been linked to robust oil prices.
Investors will now be looking forward to Tuesday’s Bank of Canada interest rate announcement.
The majority of Canada’s primary security dealers expect the central bank to cut its key overnight rate by 50 basis points to 3.00 percent, according to a Reuters poll.
Cole said that if the Bank of Canada were to cut its key rate by just 25 basis points, the Canadian dollar would likely see a surge in strength.
Canadian bond prices fell along with the larger U.S. market, as a resilient stock market reigned in investors’ hopes that the U.S. Federal Reserve would continue its aggressive easing of U.S. interest rates.
“This week, the stock market will be the main trigger for bonds,” said Carlos Leitao, chief economist at Laurentian Bank of Canada.
“If indeed the stock rally continues, we could see bond prices continue to decline.”
On the domestic data front, Statistics Canada said foreigners acquired C$3.8 billion worth of Canadian securities in February, the most in a month since April 2007, with the majority of the investment in Canadian bonds.
Canadians sank C$6.14 billion into foreign securities, up sharply from January, the government agency said.
The overnight Canadian rate was 3.4067 percent, down from 3.4216 on Friday.
Friday’s CORRA rate was 3.4891 percent, down from 3.4895 on Thursday.
The two-year bond was down 2 Canadian cents at C$101.79 to yield 2.868 percent. The 10-year bond slipped 12 Canadian cents to C$102.28 to yield 3.702 percent.
The yield spread between the two- and 10-year bonds was 83.9 basis points, up from 82.9 points at the previous close.
The 30-year bond fell 10 Canadian cents to C$114.35 to yield 4.146 percent. In the United States, the 30-year treasury yielded 4.534 percent.
The three-month when-issued T-bill yielded 2.54 percent, down from 2.55 percent at the previous close.
Editing by Bernadette Baum