Dollar higher as equity markets rebound

Fri Jan 18, 2008 9:44am EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar was higher versus the U.S. dollar on Friday morning as a rebound in equity markets helped comfort investors who have been worried about what impact a global slowdown could have on Canada.

Domestic bond prices were lower across the curve as the latest piece of Canadian economic data showed manufacturing sales rose more than expected in November.

At 9:25 a.m. EST, the Canadian unit was at 97.51 U.S. cents, valuing a U.S. dollar at C$1.0255, up from 97.11 U.S. cents, or C$1.0298, at Thursday's close.

The Canadian dollar rallied to 97.89 U.S. cents after the manufacturing sales data, but it gave the gains back quickly as the report did not alter the widespread expectations for a Bank of Canada rate cut next week.

Helping support the Canadian currency was the rebound in equity markets overnight and expectations for those gains to spill into North American stock markets as well.

Given the nature of Canada's exports like oil and gold, the Canadian dollar often follows the direction of equity markets since it is seen as a strong play on global growth.

"We had a substantial selloff in North American equity markets yesterday, but during the overnight session a lot of the global equity markets started to stabilize," said George Davis, chief technical strategist at RBC Capital Markets.

"The primary driver of price action in the current environment is what equity markets are doing... when equity markets come under pressure we see the Canadian dollar sell off and vice versa."   Continued...