Canadian dollar posts big gain as oil prices rally

Thu Aug 21, 2008 4:59pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rose well over 1 cent versus the U.S. dollar on Thursday as the price of oil surged and inflation data did not suggest a Bank of Canada interest rate cut on the horizon.

Canadian bond prices closed lower across the curve as the slide in the bigger U.S. Treasury market influenced direction north of the border, while the inflation data was pushed aside.

The Canadian dollar closed at C$1.0440 to the U.S. dollar, or 95.79 U.S. cents, up from C$1.0612 to the U.S. dollar, or 94.23 U.S. cents, at Wednesday's close.

During the session, the currency rose as high as C$1.0436 to the U.S. dollar, or 95.82 U.S. cents, its highest level in two weeks and largest gain since April.

A surge in oil prices was credited for the bulk of the Canadian dollar's 1.7 percent rise versus the greenback since Canada is the largest exporter of oil to the United States.

Other factors explaining the Canadian dollar's rally were a weakening U.S. dollar due to nagging concerns about the health of the U.S. financial services sector and, to a lesser extent, data that showed Canada's inflation rate moved to a five-year high.

"Oil went up, the U.S. dollar went down and the Canadian dollar went along for a very nice ride," said David Watt, senior currency strategist at RBC Capital Markets.

Watt said there was a risk early in the session that the inflation data would be weak and accommodate thoughts that the Bank of Canada might cut interest rates.   Continued...