By Frank Pingue
TORONTO, Oct 17 (Reuters) - The Canadian currency closed
higher against a weaker U.S. dollar on Wednesday as oil prices
hit record levels, but its gains were scaled back due to weak
economic data and a fall in U.S. equity markets.
Domestic bond prices turned higher after data from Canada
and the United States missed estimates and sparked a rally that
resulted in a third-straight higher close for bonds.
The currency, which reached parity with the greenback last
month for the first time since 1976, closed at 97.56 Canadian
cents to the U.S. dollar, or US$1.0250, up from Tuesday's close
of 98.00 Canadian cents to the U.S. dollar, or US$1.0204.
The Canadian dollar climbed as high as 97.27 Canadian cents
to the U.S. dollar, or US$1.0281, early in the session, but
later handed back a chunk of those gains as economic worries
and credit concerns weighed on U.S. stocks and reined in
commodity-based currencies such as the Canadian dollar.
A report early in the session showing U.S. housing starts
hit a 14-year low was followed later by a report from the U.S.
Federal Reserve that said the pace of U.S. growth has slowed
"The Canadian dollar had reasserted its rally but it faded
a bit in the afternoon as commodity currencies across the board
tumbled along with the decline in U.S. equity markets," said
David Powell, currency analyst at IDEAglobal in New York.
"In the aftermath of the weak housing data and somewhat
dovish Beige Book report, the (U.S.) equity market has lost
ground and dragged commodity currencies down with it."
The domestic currency got a boost shortly after North
American markets closed, rising to 97.40 Canadian cents to the
U.S. dollar, or US$1.0267, as Canada's main opposition party
said it would not bring down the minority Conservative
While a weaker U.S. dollar was responsible for a good chunk
of the Canadian dollar's gains, it also got an early boost from
a jump in oil prices. U.S. crude climbed to a record of $89 a
barrel by midday, before easing to settle at $87.40. The
currency often tracks oil prices as Canada is a major producer
The Bank of Canada's Monetary Policy Report update, due on
Thursday, will garner plenty of attention, but will likely have
no significant impact on the dollar as it is expected to
maintain the tone from the bank's statement earlier this week.
The Bank of Canada said on Tuesday in a dovish statement
that it would leave its key overnight rate unchanged at 4.50
percent, and it cut its 2008 growth forecast to 2.3 percent
from its July forecast of 2.6 percent.
Canadian bond prices finished higher across the curve after
weaker than expected data from both side of the border kept
investors interested in the security offered by government
Canadian wholesale trade numbers for August dropped by a
sharper than expected 2 percent on falling sales of motor
vehicles and machinery and electronic equipment.
In the United States, housing starts fell 10.2 percent in
September to their lowest level in over 14 years. U.S. building
permits fell 7.3 percent for their steepest decline since
The two-year bond rose 6 Canadian cents to C$99.94 to
yield 4.280 percent, while the 10-year bond rose 27 Canadian
cents to C$96.70 to yield 4.424 percent.
The yield spread between the two-year and 10-year bond
moved to 14.4 basis points from 14.2 at the previous close.
The 30-year bond rose 52 Canadian cents to C$108.98 to
yield 4.451 percent. In the United States, the 30-year treasury
yielded 4.828 percent.
The three-month when-issued T-bill yielded 3.97 percent,
down from 4.04 percent at the previous close.