Canadian dollar strengthens to a nearly four-week high as oil surges

Wed Oct 19, 2016 11:17am EDT
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a nearly four week high against its U.S. counterpart on Wednesday as a surge in oil prices overshadowed the Bank of Canada's decision to leave interest rates on hold.

The central bank cut its growth forecast, citing a looming slowdown in housing and a weaker outlook for exports, but said fiscal stimulus, accommodative monetary policy and a strengthening U.S. economy should help in months ahead.

As expected, it held its overnight rate at 0.5 percent, where it has been since July 2015.

"The broad contours are pretty much in line with what we were expecting," said Jimmy Jean, senior economist at Desjardins.

U.S. crude CLc1 prices were up 3.18 percent at $51.89 a barrel, extending gains after data showed a large draw in U.S. crude stocks.

The inventory data was "bullish" for oil and the loonie benefited as oil climbed, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

Oil is one of Canada's major exports.

Gains for the loonie came as equity market volatility fell. The CBOE Volatility Index , which is a measure of expected volatility in U.S. stock prices, tumbled more than 6 percent.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.   REUTERS/Mark Blinch