Canadian dollar rises

The Canadian dollar strengthened versus the US currency on Wednesday, as thin market volumes forced the currency to ride the wave of corporate buyers and fund managers readjusting portfolios ahead of the year end. Bonds ended little changed in a holiday-shortened session, outperforming US treasuries.
At an early close of 1 pm (1800 GMT), the currency was at 1.2092 to the US dollar, or 82.70 US cents, up from C$1.2146 to the US dollar, or 82.33 US cents, at Tuesday's close. With many market players out finishing up Christmas shopping rather than watching data screens, the currency paid little heed to its traditional drivers, rising despite a 3 percent drop in oil prices and not moving on stronger-than-expect Canadian October growth data.
"Really it's just been about the flows," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto. "We did see a bit of corporate (US dollar) selling today. I think there was a bit of an overhang of (US) dollar sellers."
Canada's economy contracted by 0.1 percent in October, compared with analysts' expectations of a 0.3 percent decline. Market players are largely in a wait-and-see mode as January will bring an expected stimulus package in Canada's federal budget, the inauguration of US President-elect Barack Obama, and an interest rate decision and Monetary Policy Report Update by the Bank of Canada.
Bond prices were little changed, outperforming US treasuries, which gave back early gains. Canadian bond yields hit their lowest in more than a decade last week, and US yields - which have declined as the US Federal Reserve has chopped its key interest rate to nearly zero - are even lower.
While Canada's economy is now believed to be in recession, the country has not experienced real estate and financial services meltdowns anywhere close to those in the United States. The two-year bond rose 2 Canadian cents to C$102.93 to yield 1.205 percent. The 10-year bond climbed 7 Canadian cents to C$111.92 to yield 2.801 percent.
The yield spread between the two-year and 10-year bond was at 161 basis points, up from 159 at the previous close. The 30-year bond edged up 5 Canadian cents to C$127.10 to yield 3.489 percent. In the United States, the 30-year Treasury yielded 2.636 percent.