(Repeats to broaden distribution)
By Frank Pingue
TORONTO, Jan 2 (Reuters) - The Canadian dollar closed lower
against the U.S. currency on Wednesday as investors shied away
from risky assets, but a jump in oil prices to $100 a barrel
and record high gold prices helped cushion its fall.
Domestic bond prices finished higher across the curve as
the latest piece of economic data from the United States upped
the chance for a Federal Reserve rate cut this month.
The Canadian dollar closed at US$1.0072, valuing a U.S.
dollar at 99.28 Canadian cents, down from US$1.0087, or 99.13
Canadian cents per U.S. dollar, at Monday's close.
The positive commodity backdrop helped propel the Canadian
dollar to a session high of US$1.0130, or 98.72 Canadian cents
per U.S. dollar, but it reversed course as investors unloaded
cyclical currencies like the Canadian dollar.
"Strength in risk-aversion trades, being the unwind of the
carry trade and reduction of equities globally, are being met
with cyclical currencies being sold off," said Jack Spitz,
director of foreign exchange at National Bank Financial.
"What's holding Canada in to some degree is the fact that
correlated markets, both crude and gold, are trading at record
highs ... but it's not translating into record strength for the
Canada is a major producer and exporter of both oil and
gold, and the performance of its currency often mirrors the
direction of prices for the two commodities.
And even though the currency was unable to cash in on an
ideal commodity backdrop on Wednesday, Spitz suggested it could
get a boost later in the week if key U.S. data comes in weak
and rattles the greenback.
"There are uncertainties and structural weaknesses in the
U.S. dollar and the U.S. economy, and I think it will continue
to falter," said Spitz.
"The payrolls number that we will see on Friday south of
the border will more than likely be soft and will lead to a
retracement (in the U.S. dollar) back toward 98 (Canadian)
The move in the Canadian dollar this week may be slightly
exaggerated given the relatively thinly staffed trading desks
during a holiday-shortened week.
BONDS EDGE HIGHER
Canadian bond prices finished higher across the curve as
the lack of domestic data forced bonds to seek direction south
of border where rate cut expectations grew after the latest
piece of economic data.
A U.S. report that showed manufacturing weakness stoked
recession worries, rattled U.S. stocks and sparked interest in
safer government debt.
The Canadian economic calendar is empty until the release
of the industrial product price and raw materials price indexes
for November on Friday.
The two-year bond rose 22 Canadian cents to C$101.14 to
yield 3.623 percent. The 10-year bond jumped 63 Canadian cents
to C$100.70 to yield 3.910 percent.
The yield spread between the two-year and 10-year bond was
28.7 basis points, up from 24.2 basis points at the previous
The 30-year bond ended up 84 Canadian cents at C$116.40 to
yield 4.041 percent. In the United States, the 30-year treasury
yielded 4.357 percent.
The three-month when-issued T-bill yielded 3.82 percent,
down from 3.86 at the previous close.