Canadian dollar rises

The Canadian dollar rode a wave of positive sentiment to close higher against the US dollar for a seventh straight session on Monday, helped by a rally in equities markets, higher oil prices and positive news on the asset-back commercial paper front.
Canadian bond prices dipped in thin trading as investors squared positions ahead of the holidays. Canadian bond and equities markets closed early on Monday, and the Bank of Canada gave an official closing figure for the currency at that time as well.
The Canadian dollar closed at US $1.0152, valuing each US dollar at 98.50 Canadian cents, up from US $1.0074 or 99.27 Canadian cents to the US dollar, at Friday's close. With many traders, mutual fund managers, and corporate executives already off for the holidays, the markets were very thin, and any moves that were made were exaggerated, said Matthew Strauss, senior currency strategist at RBC Capital Markets. "It seems the move was mainly flow driven, with a few main players in the market with specific positions."
But while most of the day's action involved the squaring up of books ahead of the holidays, there were some fundamentals supporting the currency as well, Strauss said. A rally in the equities markets appears to have boosted risk appetite in the forex market, as investors moved back into the carry trade.
The carry trade refers to the practice of borrowing in a low-yielding currency, such as the Japanese yen, to buy higher-yielding assets or currencies, such as the Australian dollar. While Canada's dollar is not considered a high yielder, it is commodities-based, like the high-yielders, and it often gets pulled along when carry trade is on.
The Canadian dollar received further support from robust oil prices. US crude prices reversed earlier losses and were up around 0.75 percent, adding to Friday's 2.5 percent gain. Canada is a major oil producer and exporter. Analysts also noted that an agreement in principle reached by a Canadian investor group to restructure about C$33 billion of nonbank asset-backed commercial paper added a more positive tone to the Canadian dollar.
The nonbank ABCP has been frozen since the credit crunch hit in the summer. The deal, which will see much of the existing paper exchanged for longer-term notes, is expected to close in March, after all investors have voted on it. Bond prices fell as investors prepared for the yearend and a rally in equities took away some of the recent safe-haven bid in government debt.
"There's not much really driving markets at all, apart from position-squaring," said Michael Gregory, senior economist at BMO Capital Markets. No Canadian economic data was released, and no more is scheduled for the rest of the year. The two-year bond dipped 4 Canadian cents to C$100.69 to yield 3.871 percent. The 10-year bond slid 13 Canadian cents to C$99.27 to yield 4.094 percent.
The yield spread between the two-year and 10-year bond was 22.3 basis points, unchanged from the previous close. The 30-year bond fell 14 Canadian cents to C$114.17 to yield 4.160 percent. In the United States, the 30-year treasury yielded 4.623 percent. The three-month when-issued T-bill yielded 3.90 percent, up from 3.88 percent at the previous close.