By Frank Pingue
TORONTO, Sept 11 (Reuters) - The Canadian dollar rose
against the U.S. currency on Tuesday and touched its highest
level since late July as equity markets and commodity prices
rallied and bets were on a U.S. interest-rate cut.
Bond prices turned lower after a string of gains as data
showing Canada's housing sector remained hot trumped trade
surplus figures that fell more than expected.
The Canadian dollar closed at C$1.0418 to the U.S. dollar,
or 95.99 U.S. cents, up from C$1.0525 to the U.S. dollar, or
95.01 U.S. cents, at Monday's session close.
Late in the session, the Canadian dollar reached C$1.0410
to the U.S. dollar, or 96.06 U.S. cents, its highest level
since July 26, due to a slew of Canada-dollar positive events,
including a rally in North American equity markets.
Since credit market turmoil unsettled global financial
markets in August, the Canadian dollar has mostly moved in
tandem with equities.
"When equities were weak, bonds were strong, and generally
the Canadian dollar was on the soft side, and today we saw the
reverse of that to a larger degree," said Doug Porter, deputy
chief economist at BMO Capital Markets.
"The (Canadian) currency also received a boost from the
persistent strength in energy prices, which certainly wasn't
dented by the announcement that OPEC will increase
Oil prices managed to close at a record high above $78 a
barrel given concerns about thinning world inventories, while
gold prices extended recent gains to hit a 16-month high.
Canada is a major producer and exporter of oil and gold and
its currency often moves in line with oil and gold prices.
The Canadian dollar's sharp rise was magnified by U.S.
dollar weakness given expectations for a U.S. Federal Reserve
rate cut next week.
If the Fed does cut its key fed funds rate on Sept. 18 it
would narrow the interest rate spread in favor of the Canadian
dollar as the Bank of Canada is widely expected to leave its
key rate unchanged when it next sets policy on Oct. 16.
With no domestic data due on Wednesday the market will turn
its attention to a speech in London by Bank of Canada Governor
David Dodge on the subject "A Clear Case for Transparency".
BONDS TURN LOWER
Canadian bond prices finished lower following a recent
rally that intensified late last week after U.S. jobs report
came in much weaker than expected.
Domestic data also contributed to the bond selloff as an
August housing report topped estimates and outweighed figures
that showed Canada's trade surplus shrank more than expected in
"We continue to see solid upward pressure on home prices in
a strong housing market and lower prospects of the Bank of
Canada cutting (rates)," Porter said. "So that may have
slightly weighed on Canadian bond prices today."
The two-year bond fell 11 Canadian cents to C$99.24 to
yield 4.210 percent, while the 10-year bond dropped 49 Canadian
cents to C$97.37 to yield 4.334 percent.
The yield spread between the two-year and 10-year bond was
at 12.4 basis points from 12.7 at the previous close.
The 30-year bond lost 79 Canadian cents to C$110.49 to
yield 4.364 percent. In the United States, the 30-year treasury
yielded 4.651 percent.
The three-month when-issued T-bill yielded 4.05 percent,
down from 4.03 percent at the previous close.