* C$ firms to C$0.9698, or $1.0311
* Bonds mixed across the curve
By Solarina Ho
TORONTO, March 30 (Reuters) - The Canadian dollar hit its highest level against the greenback in three weeks on Wednesday, buoyed by underlying strength in commodities and a return to risk.
The price of Brent crude oil edged higher on Wednesday, lifted by ongoing turmoil in the Middle East and North Africa, though U.S. crude futures dipped slightly due to swelling U.S. inventories.
The Canadian dollar "is outperforming most of the other currencies," said Camilla Sutton, chief currency strategist at Scotia Capital. "Generally, commodity currencies are strong even though oil is slightly softer -- oil is still at very elevated levels and general market tone is adding risk to portfolios.
"It's somewhat of a mixed underlying fundamental picture for Canada, but it's still managing to rally, most likely just on bullish sentiment on commodity currencies," she said.
Sutton also noted increased chatter on the carry trade and its rebuilding momentum, with safe-haven currencies like the yen significantly weaker. The Canadian dollar strengthened in sympathy with other commodity-linked currencies such as the New Zealand dollar and the Australian dollar, both of which were outperformers.
Speculation that Japanese investors may reduce dollar hedging positions related to their overseas investments is helping shift focus back to economic fundamentals and reinforcing the yen's status as a funding currency. [FRX/]
At 8:25 a.m. (1325 GMT), the currency CAD=D4 stood at C$0.9698 to the U.S. dollar, or $1.0311, up nearly half a cent from Tuesday's North American finish of C$0.9747, or $1.0260.
The Canadian dollar hit an overnight high of C$0.9686, or $1.0324, its highest level since March 9, when it reached C$0.9667, or $1.0344. That was its strongest level since November 2007. [ID:nN09287031]
Sutton expects the loonie to trade between C$0.9668 and C$0.9750, with few economic drivers expected to motivate the currency.
BOND PRICES MIXED
Canadian government bond prices were mixed across the curve. South of the border, U.S. Treasury prices edged higher following a report that U.S. private sector jobs rose in March. [US/]
Meanwhile, the president of the Federal Reserve Bank of Dallas, Richard Fisher, became the latest U.S. central bank official to issue hawkish comments, saying he would vote against further monetary easing after the Fed's current $600 billion bond buying program ends in June. [ID:nN2984973]
"U.S. yields have pushed higher over the last few sessions and that's really been on the back of changing expectations for the Fed. We've also seen a shift higher on general inflation expectations but this morning we're seeing some of that pressure have come off," said Sutton.
The interest rate-sensitive two-year bond CA2YT=RR was up 2 Canadian cents to yield 1.786 percent, while the 10-year bond CA10YT=RR lost 13 Canadian cents to yield 3.313 percent. (Editing by Leslie Adler)