Canadian dollar rallies on lofty oil prices
By Frank Pingue
TORONTO (Reuters) - The Canadian dollar rose back above parity versus the U.S. dollar on Wednesday for the second straight day as near-record oil prices allowed the currency to rekindle its link with commodity prices.
Domestic bond prices were lower across the curve due mainly to a Bank of England quarterly inflation report that left little room for interest rate cuts.
At 8:10 a.m. (1210 GMT), the Canadian dollar was at US$1.0025, valuing a U.S. dollar at 99.75 Canadian cents, up from C$1.0028 to the U.S. dollar, or 99.72 U.S. cents, at Tuesday's close.
The recent strength in the Canadian dollar was due in large part to oil prices that stuck close to a record high of nearly $127 a barrel during the previous session.
Canada is a major oil producer and exporter and it often follows moves in the commodity, though its link has been less intense this year than in 2007.
"I attribute most of the loonie's gains to near record high oil prices," said Sal Guatieri, senior economist at BMO Capital Markets. "It looks like the currency has reestablished its normally tight link with crude oil prices."
Guatieri said lofty oil, natural gas and grain prices are helping to expand Canada's trade surplus and offer support to the Canadian dollar. That is a change from earlier this year when Canada's trade balance narrowed and weighed on the currency.
With no Canadian data due on Wednesday the Canadian dollar will likely be dictated by events in the United States, mostly the U.S. consumer price index report for April which could offer more insight into whether the U.S. Federal Reserve will halt its aggressive string of interest rate cuts. Continued...