Canadian dollar hits US96 cents for first time in 30 years


By Frank Pingue
Monday, July 16, 2007

TORONTO -- The Canadian dollar stormed to 96 U.S. cents for the first time in 30 years on Monday as higher oil prices triggered a slew of automatic buy orders.

Canadian bond prices followed the bigger U.S. treasuries market higher as lack of any key Canadian data allowed some buying after a steady decline in prices in recent weeks.

The Canadian dollar closed at C$1.0428 to the U.S. dollar, or 95.89 U.S. cents, up from C$1.0485 to the U.S. dollar, or 95.37 U.S. cents, at Friday's session close.

A move in oil prices to an 11-month high sent the Canadian dollar toward the high of C$1.0440 it hit last week, and when that level was breached it relied on a rash of automatic buy orders to hit a session high of C$1.0416 to the U.S. dollar, or 96.01 U.S. cents. It was the first time the Canadian dollar had been at 96 U.S. cents since March 1977.

"It's been one-way traffic," said Steve Butler, director of foreign exchange trading at Scotia Capital. "I think it's going to be a little bit sticky here, but certainly I think (the Canadian dollar's) got some more room to appreciate."

The Canadian currency has turned a combination of upbeat data, merger-related interest, higher commodity prices, a weak U.S. dollar and expectations of higher interest rates into a 12 percent rally since it touched a 15-month low in February.

Its sharp rally has prompted several predictions that it would reach parity with the greenback, a level last seen in November 1976, and even convinced the Bank of Canada to suggest last week that it may be content with just one more rate hike to cool the red-hot Canadian economy.

The bulk of the good news may already be priced into the currency and explain its massive charge, but the slew of M&A deals that will require foreign buyers to load up on Canadian dollars could give it the push it needs to reach parity.

"Maybe the good news is priced in but the actual financial flows that would be incorporated in the acquisitions ... have really, in my opinion, yet to be done," said Jack Spitz, director of foreign exchange trading at National Bank Financial.

"If that's that case then you've got the fiscal flow of U.S. dollars into Canadian dollars, which is going to lead the (Canadian dollar) down toward parity if not beyond."

Spitz, who said he cannot think of a good reason to want to sell the Canadian dollar at this point in time, expects the red-hot currency to hit parity by the second quarter of 2008.

The market will now turn its attention to key Canadian consumer price index data on Wednesday, which could provide another boost to the currency if it exceeds expectations.

Canadian bond prices got a bit of a boost from some soft economic data and also followed a rise in the bigger U.S. treasuries market to post a rare gain.

Canadian factory shipments in May unexpectedly slipped, but the bond market took that in stride given the more important CPI data due on Wednesday.

"I would say the Canadian yield is moving in line with the U.S. ... on fears of the (U.S.) housing subprime problems," said Sal Guatieri, senior economist at BMO Capital Markets.

The two-year bond rose 3 Canadian cents to C$98.39 to yield 4.656 percent, while the 10-year bond gained 31 Canadian cents to C$95.66 to yield 4.601 percent.

The yield spread between the two-year and 10-year bond moved to -5.5 basis points from -3.4 basis points at the previous close.

The 30-year bond added 80 Canadian cents to C$118.50 to yield 4.528 percent. In the United States, the 30-year treasury yielded 5.129 percent.

The three-month when-issued T-bill yielded 4.53 percent, unchanged from the previous close.

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