By Lynne Olver
TORONTO, Sept 6 (Reuters) - The Canadian dollar reversed
early declines to close slightly higher against the U.S.
currency on Thursday, as higher commodity prices and reassuring
purchasing data overshadowed a weak domestic building permits
Domestic bond prices declined across the board.
The Canadian dollar closed at C$1.0525 to the U.S. dollar
or 95.01 U.S. cents, up from C$1.0535 to the U.S. dollar, or
94.92 U.S. cents, at Wednesday's close.
The currency edged lower overnight, as the idea of a Bank
of Canada interest rate hike has been set aside for the time
being and market participants worried that a slowing U.S.
economy could hurt Canadian exports.
The currency then lost even more ground after data showed
Canadian building permits fell 11.3 percent in July.
The currency dropped as low as C$1.0583, or 94.49 U.S.
cents after that news, but strengthened after a mid-morning
report showed increased purchasing activity in August.
The Ivey Purchasing Managers Index, a joint project of the
Purchasing Management Association of Canada and the Richard
Ivey School of Business, rose to 58.5 in August from 54.6 in
Also helping the Canadian dollar was a rise in commodity
"Oil had been upwards of $77 and we've got gold doing quite
well today, which is probably offsetting the negative news,"
said David Watt, senior currency strategist at RBC Capital
Markets in Toronto.
Gold futures for December delivery jumped $13.90 to $704.60
an ounce, while oil prices closed higher at $76.30 a barrel on
concerns about tighter supplies. As a major energy producer and
exporter, Canada's currency often follows the direction of oil
Watt said the North American currency pair could remain
within its recent C$1.0500 to C$1.0600 range until there's
clear direction that would shift market sentiment one way or
Employment reports due out of Canada and the United States
on Friday might be one data trigger, although Watt said he
doesn't expect to see strong job gains in either country.
The Bank of Canada said on Thursday that "significant
progress" had been made in smoothing out liquidity problems
since it eased rules for injecting cash into the overnight
market last month.
As of Friday, the central bank will once again accept only
government securities as collateral when providing emergency
funds via special purchase and resale agreements.
The Bank of Canada had broadened the types of assets it
would accept as collateral last month to ease market turmoil in
the domestic asset-backed commercial paper market.
Domestic bond prices closed slightly lower ahead of the key
job reports, following U.S. treasuries lower.
"The employment reports will be huge because they will
capture some of the fallout from the credit crisis in August,"
said Sal Guatieri, senior economist at BMO Capital Markets.
The two-year bond fell 7 Canadian cents to C$99.17 to yield
4.250 percent, while the 10-year bond dipped 11 Canadian cents
to 97.20 to yield 4.355 percent.
The yield spread between the two-year and 10-year bond
moved to 10.5 basis points from 13.1 at the previous close.
The 30-year bond was down 5 Canadian cents at C$110.41 to
yield 4.370 percent. In the United States, the 30-year treasury
yielded 4.807 percent.
The three-month when-issued T-bill yielded 4.09 percent,
down from 4.12 percent at the previous close.
(Additional reporting Frank Pingue in Tor