TORONTO (Reuters) - The suddenly red-hot Canadian dollar hit its highest level of 2008 versus the U.S. dollar on Wednesday as lofty commodity prices helped the currency build on sharp gains recorded earlier this week.
Domestic bond prices had no key Canadian data to consider but still managed to build on gains made during the previous session given widespread expectations for further interest rate cuts in the United States.
The Canadian dollar closed at US$1.0196, valuing a U.S. dollar at 98.07 Canadian cents, up from US$1.0179, valuing a U.S. dollar at 98.24 Canadian cents, at Tuesday’s close.
The latest charge in the Canadian dollar, which is up 3 percent this week following three straight weekly declines, has been supported largely be a surge in commodity prices.
Oil prices hit a record high of $102.08 a barrel while gold prices neared $970 an ounce, both offering a boost to the currency given that Canada is a major producer.
The commodity backdrop helped the currency rally overnight to US$1.0247, valuing a U.S. dollar at 97.59 Canadian cents, which marked its highest level since December 28.
“Certainly the commodity-based aspect of the economy is lending support to the Canadian dollar,” said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco. “But there are also technical influences in the moves that we’ve seen over the last three days as well.”
Sylvester said the Canadian dollar’s failure to break above the US$1.0250, or 97.56 Canadian cents, a level it hit on December 28, is indicative of a technical-style move since it respected one of its previous highs.
If the Canadian dollar can break above the December peak, it would represent its highest level since mid-November.
Comments from Canadian Finance Minister Jim Flaherty early in the session, saying he hopes to do more to cut taxes on capital gains but does not anticipate new measures in the near term, did not have any noticeable impact on the currency.
Canadian bond prices ended higher across the curve after comments from U.S. Federal Reserve Chairman Ben Bernanke in testimony before the U.S. Congress did little to alter market expectations for a 50 basis point rate cut next month.
“Yields ended up falling just from dovish Bernanke comments; as well, all the (U.S.) economic information today was soft,” said Mark Chandler, fixed income strategist at RBC Capital Markets. “The fact that the Canadian dollar remained so firm I think it also helping bond prices.”
Unexpectedly weak U.S. data showed orders for long lasting U.S.-made goods fell the most in five months.
The Canadian economic calendar will pick up on Friday with the arrival of the industrial product price and raw materials price indexes for January.
The two-year bond rose 6 Canadian cents to C$102.03 to yield 3.050 percent. The 10-year bond gained 25 Canadian cents to C$101.37 to yield 3.822 percent.
The yield spread between the two- and 10-year bond was 76.7 basis points, up from 75.9 points at the previous close.
The 30-year bond added 45 Canadian cents to C$113.65 to yield 4.186 percent. In the United States, the 30-year treasury yielded 4.654 percent.
The three-month when-issued T-bill yielded 3.21 percent, down from 3.23 percent at the previous close.