Canadian dollar gets boost

The Canadian dollar touched its highest level against the US currency in nearly two months on Tuesday, as stronger commodity prices and hopes for economic stimulus packages by western governments boosted sentiment. Bonds were largely higher across the curve, helped by a rebound in the bigger US market, following a successful auction.
The Canadian currency finished at C$1.1828 to the US dollar, or 84.55 US cents, up from Monday's close at C$1.1900 to the US dollar, or 84.03 US cents. Canada's dollar has been helped by the recent resurgence in oil prices, which rose above $50 a barrel during the session. But crude for February delivery settled down 23 cents at $48.58 a barrel, as weak US economic data offset rising geopolitical tensions and Opec production cuts.
The currency also found support from rising metal prices. Copper climbed to its highest level in nearly five weeks, while gold also finished higher. Fluctuations in commodity prices often sway the currency as Canada is a major producer and exe could be an economic recovery globally by the second half of the year and also by some moderate firming in commodity prices," said Doug Porter, deputy chief economist, BMO Capital Markets.
Economic data will likely remain sour in coming months, analysts say, but there could be room for growing optimism. "People are now looking for the major economic releases and anything that has a leading edge to it as opposed to rear-view numbers," said Shane Enright, currency strategist, CIBC World Markets.
In late December, the currency was largely range-bound, after being hit by tumbling commodity prices in the second half of 2008. Domestic government bond prices were mostly higher, benefiting from a rebound in US Treasury issues.
US bonds erased losses on Tuesday afternoon, helped by a decline in stocks from session highs and a successful auction of inflation-protected bonds. Earlier, supply concerns had pressured prices in both markets and analysts expect this remain a concern.
"I do think that has been a factor weighing on the market in the last couple of weeks. Basically, it's going to be a bit of a battle between supply concerns and a very weak economy," said Porter. In Canada, a record monthly drop in both industrial producer and raw material prices was largely shrugged off by the bond market, analysts said.
The two-year bond rose 1 Canadian cents to C$102.99 to yield 1.151 percent, while the 10-year bond edged up 8 Canadian cents to C$111.18 to yield 2.883 percent. The yield spread between the two-year and 10-year bond was 175 basis points, versus 150 at the previous close. The 30-year bond fell 20 Canadian cents to yield 3.652 percent. In the United States, the 30-year treasury yielded 3.0248 percent.