February 27, 2008 / 3:03 PM / in 12 years

Canada dollar, backed by oil, hits two-month high

 By Frank Pingue
 TORONTO, Feb 27 (Reuters) - The Canadian dollar shot to a
two-month high versus the U.S. dollar on Wednesday morning as
lofty commodity prices offered a boost given the nature of
Canada's exports.
 Domestic bond prices had no Canadian data to consider but
still managed to rise across the curve as expectations for more
rate cuts in the United States triggered an appetite for more
secure assets like government debt.
 At 9:45 a.m. (1445 GMT), the Canadian currency was sitting
at US$1.0201, valuing a U.S. dollar at 98.03 Canadian cents, up
from US$1.0179, valuing a U.S. dollar at 98.24 Canadian cents,
at Tuesday's close.
 The bulk of the Canadian dollar's rise, which went as high
as US$1.0247, valuing a U.S. dollar at 97.59 Canadian cents,
during the overnight session, was credited to a rise in oil
prices to a record high of $102.08 a barrel.
 Canada is a major producer and exporter of commodities and
its currency is often influenced by the direction of prices for
them, especially the price of oil.
 "The Canadian dollar is reflecting gains in commodity
prices," said Paul Ferley, assistant chief economist at Royal
Bank of Canada.
 "Also, growing concerns about the U.S. economy's prospects
that interest rates in the U.S. will likely have to be cut
further is weighing on the U.S. dollar and compounding the
gains for the Canadian dollar."
 The release of the Conservative government's budget after
market's closed on Tuesday has not had much impact on the
domestic currency.
 Canada said it will pay down less debt in the next two
fiscal years than the C$3 billion it had previously committed
to, preferring instead to inject more stimulus into the economy
as the prospect of a U.S. recession grows.
 The opposition Liberals said they will not vote against the
budget, which ensures the survival of Prime Minister Stephen
Harper's minority Conservative government.
 The Canadian dollar is up about 3.3 percent this week after
a three-week skid where it shed nearly 2 percent.
 Canadian bond prices were higher across the curve, pulled
along by the bigger U.S. Treasury market as the latest U.S.
data cemented expectations for further interest rate cuts south
of the border.
 Investors became more certain that the U.S. Federal Reserve
would cut its key rate next month after unexpectedly weak data
showed orders for long lasting U.S.-made goods fell the most in
five months.
 "The focus right now is concern about the U.S. economy and
that is setting the tone in bond markets generally," said
Ferley. "So the response in the U.S. is spilling over to other
markets including Canada."
 The overnight Canadian Libor rate LIBOR01 was 4.0500
 Tuesday's CORRA rate CORRA= was 4.0012 percent, up from
3.9995 percent on Monday. The Bank of Canada publishes the
previous day's rate at around 9 a.m. daily.
 The two-year bond rose 11 Canadian cents to C$102.08 to
yield 3.021 percent. The 10-year bond gained 37 Canadian cents
to C$101.49 to yield 3.806 percent.
 The yield spread between the two- and 10-year bond was 78.5
basis points, up from 75.9 points at the previous close.
 The 30-year bond added 65 Canadian cents to C$113.85 to
yield 4.175 percent. In the United States, the 30-year treasury
yielded 4.625 percent.
 The three-month when-issued T-bill yielded 3.22 percent,
down from 3.23 percent at the previous close.
 (Reporting by Frank Pingue; Editing by Scott Anderson)

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