By Frank Pingue
TORONTO, Aug 1 (Reuters) - The Canadian dollar used record
high oil prices as a springboard on Wednesday to recoup a
portion of its recent losses and close at its highest level
against the U.S. currency since late last week.
Domestic bond prices finished mixed as the market opted to
avoid any huge moves until catching a glimpse of a key U.S.
employment report on Friday.
The Canadian dollar closed at C$1.0575 to the U.S. dollar,
or 94.56 U.S. cents, up from C$1.0668 to the U.S. dollar, or
93.74 U.S. cents, at Tuesday's close.
A jump in oil prices to a record high of $78.77 a barrel
before turning lower was enough to spark a move by the currency
to a session high of C$1.0553 to the U.S. dollar, or 94.76 U.S.
The Canadian dollar had started to recoup a chunk of the
previous day's losses during the overnight session when it
became clear the recent equity selloff would not continue, at
least not on U.S. markets.
"Then while most of the other currencies basically stalled
around the levels that they left at the previous session, the
Canadian dollar just caught wind and took off," said David
Watt, senior currency strategist at RBC Capital Markets.
"Part of this could be oil prices ... even though I don't
think people really think that there's a possibility oil prices
are going to stay at these levels for months and months."
Watt also said that merger-related interest could be
responsible for some of the currency's rise, given the slew of
deals in recent months that saw foreign companies snap up
The bounce in the Canadian dollar helped it turn back
toward the 30-year high of C$1.0337, or 96.74 U.S. cents, that
it reached last week.
But Watt suggested the currency should be around 93.50 U.S.
cents and that investors are ignoring the uncertainty regarding
world credit, which he said is a story that will not disappear
any time soon.
Canadian bond prices had no domestic data to consider and
took their cue from the bigger U.S. treasuries market, which
finished lower ahead of Friday's U.S. employment report.
But the fall was limited given investor appetite for the
safety of bonds due to concerns about the deteriorating credit
conditions and a crisis in the U.S. subprime mortgage market.
"All of the focus is on the U.S. employment report on
Friday," said Sal Guatieri, senior economist at BMO Capital
Markets. "There's really nothing out for Canada for the rest of
this week that would affect the market."
The Canadian June building permits report due on Friday is
not expected have much of an impact as it follows a record high
reading in May.
Even if the June report retraces half the previous month's
reading, the market is expected to see through it as underlying
strength in that area of the domestic economy.
The two-year bond fell 6 Canadian cents to C$98.44 to yield
4.651 percent, while the 10-year bond eased 2 Canadian cents to
96.18 to yield 4.529 percent.
The yield spread between the two-year and 10-year bond was
at -12.2 basis points against -8.5 at the previous close.
The 30-year bond rose 7 Canadian cents to C$109.58 to
yield 4.418 percent. In the United States, the 30-year treasury
yielded 4.928 percent.
The three-month when-issued T-bill yielded 4.59 percent,
down from 4.60 percent at the previous close.