Canada dollar rises on firm oil price, bonds flat

TORONTO, May 22 (Reuters) - The Canadian dollar hit a fresh
29-1/2-year high against the U.S. dollar on Tuesday, boosted by
recent strength in oil prices and strong domestic data.

Bond prices, with no fresh Canadian data to consider, were
little changed.

At 9:30 a.m. (1330 GMT), the Canadian unit was at C$1.0859
to the U.S. dollar, or 92.09 U.S. cents, up from C$1.0895 to
the U.S. dollar, or 91.79 U.S. cents, at Friday's close.

Canadian markets were closed on Monday for Victoria Day.

Since Canada is a major oil and gas exporter, the currency
often pushes higher with the price of crude. Brent crude oil
LCOc1 was firm above $70 a barrel after hitting a 9-month
high the previous day as violence in Nigeria stoked fears of
deeper supply outages.

That followed a ream of robust Canadian data, notably
higher-than-expected core inflation figures last week.

"I think it's a combination of the commodity story and
maybe even a hangover of the CPI figures," said Ted Gould, a
trader at Investors Bank & Trust in Boston.

"And since there is not a lot of data ... to sink your
teeth into, barring a move in commodity prices (the Canadian
dollar) is going to hover in the area it is now."

The Canadian dollar climbed to a 29-1/2-year high on the
strong data, a weaker U.S. dollar, merger-related interest,
higher commodity prices and expectations for higher interest
rates in Canada.

Over the past two months, the currency has advanced 8
percent against the greenback, a pace that analysts say could
cause a dilemma for Bank of Canada Governor David Dodge, who
may be compelled to raise interest rates to curb inflation.

The Bank of Canada, which has left its key overnight rate
steady at 4.25 percent since May 2006, is next due to set rates
on May 29.

On Monday, Dodge said that while the bulk of the Canadian
dollar's move has been based on strong fundamentals, the bank
will continue to watch the currency's impact on inflation and
will consider that in its July monetary report.

BONDS FLAT

Canadian bond prices were little changed, with no key local
or U.S. economic reports due until later in the week.

Bond prices have been under pressure recently as a wave of
upbeat data has prompted analysts to rethink their expectation
that interest rates would stay steady the rest of the year.

The two-year bond was down 1 Canadian cent at C$98.77 to
yield 4.385 percent, while the 10-year bond was up 1 Canadian
cent at C$97.64 to yield 4.320 percent.

The yield spread between the two-year and 10-year bond
moved to -6.5 basis points from -6.6 at the previous close.

The 30-year bond was unchanged at C$122.85 to yield 4.285
percent. In the United States, the 30-year treasury yielded
4.943 percent.

The three-month when-issued T-bill yielded 4.18 percent,
unchanged from the previous close.