TORONTO (Reuters) - The Canadian dollar climbed more than a cent against the U.S. dollar on Monday, supported by surging energy and non-energy commodity prices.
Domestic bond prices, with a lack of domestic data to influence direction, were mixed.
At 9:30 a.m., the Canadian dollar was at C$1.0010 to the U.S. dollar, or 99.90 U.S. cents, up from C$1.0130 to the U.S. dollar, or 98.72 U.S. cents, at Friday close.
Canada is a major oil exporter and the price of U.S. light crude futures, near $99 dollars a barrel, has supported the Canadian dollar. But non-energy commodities are also playing a key role in the currency’s strength, said David Watt, senior currency strategist at RBC Capital Markets.
“You look at these non-energy commodity prices and a lot of the base metals and the agricultural commodities are still surging and if you are an economy that is sensitive to those prices, your economy is going to be doing pretty well,” said Watt.
“We’ve got an indicator that we follow that’s base metals and it includes wheat as well, and since late January, it’s up 16, almost 17 percent and right now it’s only 3 percent below its peak from May of last year,” said Watt.
The Bank of Canada has said that the main drivers of the Canadian dollar right now are energy and non-energy commodities, as well as the interest rate spread between Canada and the United States.
Analysts and investors will get a chance to hear more of what the Bank of Canada is thinking on Tuesday, when Senior Deputy Governor Paul Jenkins and Deputy Governor John Murray are scheduled to speak to a government committee about the impact of the strong Canadian dollar on the economy.
Later on Tuesday, all eyes will remain on Ottawa where Canadian Finance Minister Jim Flaherty will present the federal budget. The minority Conservative government risks being defeated on the budget, which would trigger an election, but the biggest opposition party, the Liberals, have hinted they will support the budget and allow it to pass.
Canadian bond prices, with a lack of any domestic data, were mixed along with U.S. Treasury prices ahead of a U.S. existing home sales report for January.
Domestic investors will be adjusting their portfolios ahead of the Canadian budget in anticipation of measures included to stimulate investment, said Carlos Leitao, chief economist at Laurentian Bank of Canada.
Also of interest this week, Canadian banks begin reporting their first-quarter results.
“That could reinforce the difference between Canadian banks and U.S. banks and by extension, that the Canadian financial system is in better shape than the U.S.,” said Leitao.
The overnight Canadian Libor rate was 4.0067 percent, up from 3.9133 percent on Friday.
Friday’s CORRA rate was at 4.0014 percent, up from 3.9964 on Thursday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.
The two-year bond dropped 5 Canadian cents to C$101.84 to yield 3.164 percent. The 10-year bond dropped 3 Canadian cents to C$100.90 to yield 3.883 percent.
The yield spread between the two- and 10-year bond was 71.9 basis points, down from 74.5 basis points at the previous close.
The 30-year bond rose 12 Canadian cents to C$112.93 to yield 4.225 percent. In the United States, the 30-year Treasury yielded 4.586 percent.
The three-month when-issued T-bill yielded 3.24 percent, down from 3.25 percent at the previous close.
Editing by Bernadette Baum