TORONTO (Reuters) - The commodity-linked Canadian dollar closed higher against a sagging U.S. dollar on Friday, helped by a spike in oil prices to nearly $143 a barrel.
Canadian bond prices ended mixed as Canadian stocks rallied, hurting front end bond prices.
The Canadian dollar closed at C$1.0106 to the U.S. dollar, or 98.95 U.S. cents, up from C$1.0131 to the U.S. dollar, or 98.71 U.S. cents, at Thursday’s close.
For the week, the Canadian dollar ended up 0.6 percent, extending its 1.2 percent gain from last week.
The currency rose as high as C$1.0050 in the morning, its firmest level since June 3, as oil prices surged, but gave back much of the gain as investors squared their books ahead of the month and quarter end.
“A bit of a topsy-turvy day,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
“People are looking at what’s happening with oil and with gold, but a lot of that gets washed away with these month- and quarter-end flows,” he said.
The price of U.S. crude oil futures hit a record $142.99 a barrel on Friday as commodities rallied in response to drops in many major equities markets.
Canada is the biggest oil supplier to the United States and is a major producer of many key commodities.
While large moves in the price of oil often influence the direction of the Canadian dollar, investors have been less willing to buy the currency on the latest oil price rally.
Butler said that was because there are a lot of concerns about the impact the high oil prices could have on the economy. He added that while energy-rich Western Canada is reaping the rewards of high the oil prices, the manufacturing centers in Central Canada are struggling due to the U.S. financial slowdown.
The high energy prices were seen adding to the woes of the U.S. economy and the U.S. dollar weakened in response.
Canadian bond prices were mixed in thin trading, with the short end diverging from the rally in the larger U.S. market, which was boosted by a flight to quality bid.
“The front end of the bond markets reflect fight-to-quality type of cash flows and with the U.S. (stock) market down, that would explain why their (U.S.) front end bond prices are doing better than ours,” said Sheldon Dong, fixed income strategist at TD Securities.
Concerns about the effects of the higher energy prices dragged the Dow Jones industrial average down by 106.91 points. Meanwhile, the key Toronto stock index, which is heavily weighted toward energy stocks, staged a rally to end the day up 63.07 points.
Canadian data showed Canadian industrial product prices up 0.6 percent in May from April and raw materials up 3.1 percent, propped up by a sharp rise in petroleum prices.
The two-year bond fell 5 Canadian cents to C$101.06 to yield 3.174 percent. The 10-year bond rose 2 Canadian cents to C$102.22 to yield 3.705 percent.
The yield spread between the two-year and 10-year bond was 53.1 basis points, down from 55.5 at the previous close.
The 30-year bond gained 26 Canadian cents to C$115.76 for a yield of 4.068 percent. In the United States, the 30-year Treasury yielded 4.527 percent.
The three-month when-issued T-bill yielded 2.57 percent, down from 2.60 percent at the previous close.
Editing by Peter Galloway