Canadian dollar follows oil prices to higher close

Mon Apr 28, 2008 5:04pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar finished higher versus the U.S. dollar on Monday, helped up by record high oil prices and a growing view that the worst of the credit crisis may be over.

Canadian bond prices closed higher across the curve as investors decided to revisit more secure assets following a string of losses in recent weeks that left prices at attractive levels.

The Canadian dollar closed at C$1.0127 to the U.S. dollar, or 98.75 U.S. cents, up from C$1.0163 to the U.S. dollar, or 98.40 U.S. cents, at Friday's close.

A rise in oil prices to a record near $120 a barrel helped lift the commodity-linked Canadian dollar to C$1.0067 to the U.S. dollar, or 99.33 U.S. cents, overnight before it backed off during the first half of the North American session.

And while considerable stress continues to hinder credit markets, expectations that the U.S. Federal Reserve will follow a slew of hefty rate cuts with a smaller 25-basis-point rate cut this week has helped lessen some of the concerns.

"There's a sense that the worst might be over for the U.S. economy, which tends to benefit (the Canadian dollar) relative to the crosses and sometimes even against the U.S. dollar," said Sal Guatieri, senior economist at BMO Capital Markets.

"The U.S. dollar was supported by a sense that the Fed will likely hint at a pause in its easing cycle ... so basically we saw risk aversion trades get unwound and that tends to benefit the second tier currencies like the loonie."

The Fed will make a decision on interest rates following a two-day policy meeting that ends on Wednesday, and plenty of attention will be directed to its statement to see if it signals an end to its latest easing cycle.   Continued...