By Frank Pingue
TORONTO, Nov 6 (Reuters) - The Canadian dollar raced to a
new modern-day high and closed comfortably above US$1.08 on
Tuesday, helped by a surge in commodity prices, a weaker
greenback and stability in global equity markets.
Canadian bond prices finished lower as global stock markets
rebounded, but weaker-than-expected Canadian building permits
data offered some support to safe-haven government bonds.
The Canadian dollar closed at US$1.0851, valuing each U.S.
dollar at 92.15 Canadian cents, up from Monday's close of
US$1.0718, or 93.30 Canadian cents.
Late in the session the Canadian currency surpassed the
modern-day high reached overnight, and after a slight pullback
it bounced back to close at that level. It extended its gains
after the North American session closed.
The bulk of the gains in the Canadian currency were pegged
to record oil prices above $97 a barrel, another surge in gold
prices, and a weak greenback due to expectations for another
U.S. Federal Reserve rate cut.
"The Canadian dollar really is going to stop when people
get tired of buying it, and they are not tired of buying it
yet," said David Watt, senior currency strategist at RBC
Capital Markets. "There is nothing really to suggest why you
would want to start buying (the U.S. dollar) now."
Fallout related to the U.S. home loan crisis reinforced
expectations that the Fed will cut its benchmark rate from the
current 4.50 percent. It has cut rates by three-quarters of a
percentage point since September.
A good portion of the Canadian dollar's late-session gains
followed comments in New York by Bank of Canada Senior Deputy
Governor Paul Jenkins, who said the main risk that could push
inflation and growth lower was a higher-than-expected Canadian
"He didn't seem to really increase the tension that I think
the Bank of Canada has been feeling about the Canadian dollar,
so he didn't seem to indicate that the bank is prepared to do
anything," Watt said.
"It was an efficient retelling of what the bank said two
weeks ago. In markets two weeks is a lifetime, in a central
bank two weeks is no time, it's like a couple of minutes."
BONDS DRAGGED DOWN
Canadian bond prices finished lower as the safe-haven lure
of government debt was dismissed by investors who moved back in
equities, but weak domestic data cushioned the fall.
The value of Canadian building permits unexpectedly dropped
by 1.7 percent in September, less than the median market
forecast for a 2 percent rise in permits.
The two-year bond slipped 3 Canadian cents to C$100.25 to
yield 4.120 percent, while the 10-year bond lost 19 Canadian
cents to C$97.53 to yield 4.317 percent.
The yield spread between the two-year and 10-year bond
moved to 19.7 basis points from 18.3 at the previous close.
The 30-year bond fell 41 Canadian cents to C$110.41 to
yield 4.369 percent. In the United States, the 30-year Treasury
yielded 4.671 percent.
The three-month when-issued T-bill yielded 4.00 percent,
down from 4.02 percent at the previous close.
(Reporting by Frank Pingue; Editing by Peter Galloway