TORONTO (Reuters) - The Canadian dollar closed above parity with the U.S. dollar on Monday, for the first time in almost two weeks, as commodity prices and positive news for U.S. bond insurers boosted investor sentiment.
Domestic bond prices, with no Canadian economic data to consider, followed the bigger U.S. Treasury market to a lower close across the curve.
The Canadian dollar closed at US$1.0048, valuing a U.S. dollar at 99.80 Canadian cents, up from 98.72 U.S. cents, valuing a U.S. dollar at C$1.0130, at Friday’s close.
It marked the Canadian currency’s first close above par with the greenback since February 13 and follows three straight losing weeks.
Buying interest in the currency picked up momentum late in Friday’s session as investors reacted positively to news about a possible bailout of U.S. bond insurer Ambac Financial Group ABK.N.
That helped spark a rally in stock markets — which have helped dictate the Canadian dollar’s direction for much of 2008 — and carried over into the overnight session and through the North America session.
“In the overnight session that was a major catalyst for a good portion of the gains for the Canadian dollar and in North America we saw a follow-through on that theme,” said George Davis, chief technical strategist at RBC Capital Markets.
“And equity markets opened higher and have traded higher throughout the day, so that’s been a positive backdrop — and the commodity backdrop is still pretty favorable.”
The commodity-linked Canadian dollar drew plenty of support from a rise in oil prices above $99 a barrel since Canada is a key energy producer and exporter.
Investor focus will turn on Tuesday to Bank of Canada Senior Deputy Governor Paul Jenkins and Deputy Governor John Murray, who are scheduled to speak to a parliamentary committee on the economic impact of the strong Canadian dollar.
Later in the day, all eyes will be on Finance Minister Jim Flaherty, as he is scheduled to present the federal budget. If the fiscal plan does not find support among opposition parties, that could bring down the minority Conservative government and lead to an election.
Canadian bond prices, with a lack of any domestic data, followed U.S. prices lower after U.S. data showed the troubled housing market was a little stronger than expected.
Also weighing on bond prices was news that credit-rating agency Standard & Poor’s ended its downgrade review for bond insurer MBIA Inc (MBI.N) and affirmed Ambac’s “AAA” rating.
The two-year bond dropped 9 Canadian cents to C$101.80 to yield 3.189 percent. The 10-year bond dropped 27 Canadian cents to C$100.65 to yield 3.914 percent.
The yield spread between the two- and 10-year bond was 72.5 basis points, down from 74.5 basis points at the previous close.
The 30-year bond fell 31 Canadian cents to C$112.50 to yield 4.249 percent. In the United States, the 30-year treasury yielded 4.665 percent.
The three-month when-issued T-bill yielded 3.23 percent, down from 3.25 percent at the previous close.