CANADIAN DOLLAR CLOSES NEAR 2-WEEK HIGH, ABOVE 99 U.S. CENTS


[PHOTO AT LEFT - THE CANADIAN LOONEY (1 DOLLAR COIN)

TORONTO (REUTERS), APRIL 3, 2010 (YAHOO BUSINESS NEWS) By Ka Yan Ng - The Canadian dollar zipped above the 99 U.S. cent level on Thursday for the first time in almost two weeks, extending its gains against the greenback as the price of oil hit an 18-month high and other riskier assets found favor.

The currency finished at C$1.0084 to the U.S. dollar, or 99.17 U.S. cents, up from Wednesday's finish at C$1.0158 to the U.S. dollar, or 98.44 U.S. cents.

"The primary credit goes to the risk-on trade that's prevailing in most markets. The Canadian dollar is enjoying the updraft," said Eric Lascelles, chief economics and rates strategist at TD Securities.

Oil neared $85 a barrel, drawing fresh inflows from investors at the start of the new quarter, while global stocks moved higher, backed partly by upbeat European and Chinese manufacturing data that fueled optimism about the global economic recovery.

Data south of the border added to hopes for economic recovery in the United States as jobless claims fell in the latest week and U.S. factory activity in March hit its highest level in more than 5-1/2 years.

Taking its cue from the rise in the price of oil, a major Canadian export, the Canadian dollar reached its highest level since March 19 -- the same day the Canadian dollar last looked primed to test parity with the greenback.

Canada's dollar has again moved within striking distance of hitting parity with the U.S. currency, reaching as high as C$1.0067 to the U.S. dollar, or 99.33 U.S. cents, but still below the highest point reached in March at 99.38 U.S. cents.

Parity has not been reached since July 2008.

The Canadian dollar has begun the second quarter on a strong note, after notching a bit more than a 3 percent gain against the greenback in the first three months of the year.

Part of the rise is backed by a string of firm economic data, most recently with a report that showed GDP for January exceeded expectations.

The U.S. jobs report for March on Friday is a potential catalyst to push it closer or through parity, depending on the outcome of the data and liquidity conditions as Canada will be closed for the Good Friday holiday.

"You can't rule it out," said Paul Ferley, assistant chief economist at Royal Bank of Canada. He said if the jobs report suggests the timing of the first U.S. interest rate hike will be in the fourth quarter, or later, it could boost the Canadian dollar since Canada's tightening cycle is expected to start around midyear.

BONDS OUTPERFORM U.S.

Canadian bond prices were flat to higher across the curve, outperforming U.S. Treasury market, as investors waited for Friday's U.S. jobs report and largely looked past Thursday's stronger than expected U.S. data.

"It's important to emphasize how small the movement is. It does not necessarily represent a groundswell of attitude change among investors," Lascelles said.

"This might be some rejigging more than anything else in advance of the weekend and (U.S.) payrolls."

There may also be more trepidation around the U.S. jobs data than usual, in part because most markets will be shut for Easter.

The two-year government bond edged up 3 Canadian cents to C$99.59 to yield 1.722 percent, while the 10-year bond gained 10 Canadian cents to C$101.50 to yield 3.557 percent.

Canadian bond prices have generally been on the decline as market players increasingly price in the probability that the Bank of Canada will hike interest rates in July.

(Reporting by Ka Yan Ng; editing by Rob Wilson)


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