Canadian dollar gains on record high oil prices

Wed Mar 12, 2008 5:01pm EDT
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TORONTO (Reuters) - The Canadian dollar rode record oil prices to a higher close against a besieged U.S. dollar on Wednesday, but concerns about Canada's reliance on the teetering U.S. economy limited the currency's gains.

Bond prices, with no domestic data to consider, rose across the curve as investors pondered the economic implications of $110 oil.

The Canadian dollar closed at US$1.0099, valuing a U.S. dollar at 99.02 Canadian cents, up from US$1.0067, valuing a U.S. dollar at 99.33 Canadian cents, at Tuesday's close.

During the overseas session the Canadian currency rose to US$1.0167 its highest level since March 7, valuing a U.S. dollar at 98.36 Canadian cents.

U.S. crude prices climbed to a record $110.20 a barrel, giving support to the commodity-linked Canadian dollar.

As the day wore on, however, investors began to shy away from the currency due to the Canada's tight economic ties with the United States, said Camilla Sutton, currency strategist at Scotia Capital.

The United States absorbs more than three quarters of Canadian exports and the two countries share the world's largest trading relationship.

The U.S. has been in an economic downturn for several months now, as the crisis in its subprime mortgage sector spread to the broader economy, and hammered credit markets world wide.

The U.S. Federal Reserve tried to address the credit market problems in a co-ordinated move with other central banks on Tuesday, by making hundreds of billions of dollars available to market players to increase liquidity.   Continued...