Canadian dollar closes lower despite rally in oil

Thu Jun 26, 2008 4:58pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar closed lower alongside a weaker U.S. dollar on Thursday as a sell North America sentiment that spread into equities dominated the market even though oil prices surged to a record high.

Canadian bond prices finished mostly higher as concerns about financial-services companies and pared down expectations for U.S. interest rate hikes sparked a bid for government debt.

The Canadian dollar closed at C$1.0131 to the U.S. dollar, or 98.71 U.S. cents, down from C$1.0107 to the U.S. dollar, or 98.94 U.S. cents, at Wednesday's close.

Since oil prices hit a record above $140 a barrel during the session, some traders thought the commodity-linked Canadian dollar would have been given a boost since oil is a major Canadian export and often influences the currency.

"Why isn't it stronger?" asked Steve Butler, director of foreign exchange at Scotia Capital. "The Canadian dollar should be at parity (with the U.S. dollar) given oil has cracked $140. It should be, but it's not."

Butler suggested market participants had been banking on a better performance for the Canadian dollar during the latest session, but when it didn't follow oil prices higher short-covering set in.

The currency's slide came alongside a 1 percent drop in the Toronto Stock Exchange's main index and a 3 percent slide in the Dow Jones industrial average.

Moves in the Canadian dollar this week have been contained to a tight range that is not expected to change ahead of the weekend as the only economic figures out in Canada on Friday are the industrial product and raw materials indexes for May.   Continued...

<p>Newly pressed Canadian one dollar coins, also know as loonies, at the Royal Canadian Mint in Winnipeg November 14, 2007. REUTERS/Fred Greenslade</p>