By Frank Pingue
TORONTO, Oct 31 (Reuters) - The Canadian dollar raced to
its highest level since the late 1800s against the U.S.
currency on Wednesday, thanks to lofty oil prices and a weak
greenback after the U.S. Federal Reserve cut interest rates.
Domestic bond prices ended lower as economic data from both
Canada and the United States topped expectations while the Fed
signaled it may be done with rate cuts.
The Canadian dollar closed at US$1.0585, making a U.S.
dollar worth 94.47 Canadian cents, up from Tuesday's close of
US$1.0492, or 95.31 Canadian cents.
Shortly after the North American session ended, the red-hot
Canadian currency hit US$1.0617, or 94.19 Canadian cents, which
some market experts consider an all-time high, given the
drastic change in market conditions since the 1800s.
A publication called "A History of the Canadian dollar" is
published on the Bank of Canada's Web site at
http://www.bankofcanada.ca/en/dollar_book/ and shows the
Canadian dollar was valued at US$2.78 in the late 1800s.
"A good part of the move has just been related to the usual
suspects," said George Davis, chief technical strategist at RBC
Capital Markets. "Broad-based U.S. dollar weakness ahead of the
FOMC helped the Canadian dollar ... and obviously we also saw
commodity prices do very well today."
The Fed did as expected and cut its key overnight federal
funds rate to 4.50 percent, putting U.S. and Canadian rates at
par for the first time since early 2005.
It also said the pace of economic growth in the United
States will slow this year, which could leave the door open for
more Canadian dollar strength on account of a weak greenback.
The Canadian currency has rallied sharply since hitting its
all-time low in January 2002, and its gains have been tied to
higher commodity prices, a robust domestic economy, a weak U.S.
dollar and merger-related interest.
Commodity prices were a key driver behind the latest push
as oil prices surged 5 percent to a record $95 a barrel while
gold jumped to a 28-year high.
Canada is a key producer and exporter of gold and oil and
its currency often moves in tandem with the prices of each.
Domestic bond prices fell after data in Canada and the U.S.
topped expectations, while the bigger U.S. treasury market also
influenced a drag on domestic prices as the Fed signaled it may
avoid further easing if the economy holds up.
Canada's economy grew by a stronger than expected 0.2
percent in August, as robust growth in retail trade and crude
oil production countered a decline in utilities and stagnating
In the United States, data on private employment and a
reading on third-quarter GDP came in much higher than expected,
knocking treasuries lower, and Canadian bonds followed.
"There was a little bit of a slight upside surprise in GDP
but that wasn't as significant as the sightly revised outlook
that we saw out of the FOMC statement," said Max Clarke, an
economist at IDEAglobal in New York. "I think that's going to
lead trading going into Friday."
The remaining key data due this week is Canadian and U.S.
October employment figures on Friday, which will likely have an
impact on bond markets.
The two-year bond fell 15 Canadian cents to C$100.17 to
yield 4.163 percent, while the 10-year bond dropped 29 Canadian
cents to C$97.62 to yield 4.306 percent.
The yield spread between the two-year and 10-year bond
moved to 14.3 basis points from 17.8 at the previous close.
The 30-year bond slid 28 Canadian cents to C$110.55 to
yield 4.361 percent. In the United States, the 30-year treasury
yielded 4.747 percent.
The three-month when-issued T-bill yielded 4.02 percent,
down from 4.03 percent at the previous close