Dollar rallies on oil as greenback falters

Wed Jul 2, 2008 5:01pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rallied more than a cent versus a weaker U.S. dollar on Wednesday due to record high oil prices and weaker-than-expected economic data that rattled the greenback.

Canadian bond prices recouped early losses and ended higher across the curve as investors fled the stock market in favor of more secure government debt amid economic data that added to a darkening global outlook.

The Canadian dollar closed at C$1.0134 to the U.S. dollar, or 98.68 U.S. cents, comfortably above the C$1.0228 to the U.S. dollar, or 97.77 U.S. cents, that it fell to in the overnight session.

The Bank of Canada did not provide an official closing rate for the Canadian dollar on Tuesday because of the Canada Day holiday. The currency closed at C$1.0197 to the U.S. dollar, or 98.06 U.S. cents, on Monday.

Spurring the Canadian dollar's rise was an economic report that showed the U.S. private sector shed more jobs than expected in June. The data sparked a U.S. dollar selloff and paved the way for the Canadian currency to rally from its overnight low.

Just after the midway point of the North American session the commodity-linked Canadian currency rose to C$1.0090 to the U.S. dollar, or 99.11 U.S. cents, as oil rose and eventually hit a record high above $144 a barrel.

The surge in oil prices followed a government report that showed U.S. crude oil inventories fell last week to their lowest level since January.

"It's been a weaker U.S. dollar combined with record high oil prices that is proving upside support for the Canadian dollar," said Tyson Wright, senior foreign exchange trader at Custom House, a currency services firm in British Columbia.   Continued...