April 14, 2010 / 8:17 PM / in 8 years

Canada dollar ends above parity for first time since 2008

TORONTO (Reuters) - The Canadian dollar rallied to close above parity with the U.S. currency on Wednesday for the first time since May 2008, as upbeat U.S. earnings and strength in commodity prices enticed investors to embrace assets perceived to be riskier.

World stocks rallied on Wednesday and oil spiked 2 percent to settle above $85 a barrel on a surprise drawdown in U.S. crude inventories and optimism about the economic recovery.

Lifted by rallying equity and commodity markets, the Canadian dollar climbed as high as C$0.9953 per U.S. dollar, or $1.0047, its highest intraday level since June 2008.

The currency finished at C$0.9992 to the U.S. dollar, or $1.0008, up from Tuesday’s close of C$1.0019 to the U.S. dollar, or 99.81 U.S. cents.

“To me it’s pretty clear the trend is definitely in Canada’s favor,” said Firas Askari, head of foreign exchange trading at BMO Capital Markets.

U.S. corporate earnings proved to be a powerful catalyst, driving stock markets higher on Wednesday, with shares of Intel Corp, the world’s largest chipmaker, rallying a day after it reported earnings and sales that trounced estimates [ID:nN1382801].

JPMorgan Chase & Co, the second-largest U.S. bank, notched gains after its profit topped estimates.

“We saw some real money types adding to their long, Canadian dollar positions,” said Askari.

“Equities seem to be solid, commodities seem to be solid. There’s a lot of interest in buying Canadian assets ... We have things the world wants,” he added, referring to news this week that a subsidiary of China’s Sinopec Group had agreed to pay $4.65 billion for ConocoPhillips’s stake in the Syncrude oil sands project, marking the country’s second largest investment in North America.

Going forward, market watchers will closely scrutinize the Bank of Canada’s Monetary Policy Report (MPR), which is due out following a rate announcement later in the month.

Canada’s economy is growing at a steady clip, but analysts don’t think the pace will be enough to prompt the central bank to break its conditional pledge to stand pat on interest rates until the end of June, providing inflation rates remain tame.

“What I‘m looking for is more guidance now from the Bank of Canada. I don’t expect too much movement in the Canadian dollar. I expect to see a period of consolidation now until we get the MPR out of the way,” said Askari.

BOND PRICES SOFTER

Canadian bond prices moved lower across the curve on Wednesday as domestic data continues to point to a reviving economy.

As well, yields were up after a well-received government of bond auction.

“We’ve had no let up in the good news in terms of the Canadian economy,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

“Rate expectations are causing yields to rise in shorter-term bonds and the spillover is definitely being felt in the middle part of the curve,” he added.

“The larger story is rates are headed higher. You have to have some commensurate upward move in yields to make them more attractive for buyers.”

The two-year government bond fell 6 Canadian cents to C$99.20 to yield 1.938 percent, while the 10-year bond dropped 22 Canadian cents to C$100.25 to yield 3.717 percent.

Canadian government bonds notched a mixed performance against U.S. issues. The Canadian two-year yield was 88 basis points above its U.S. counterpart, compared with around 85 basis points the previous session.

Reporting by Jennifer Kwan; editing by Rob Wilson

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