Canadian dollar ekes out gain as data offsets oil

Thu May 29, 2008 5:05pm EDT
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By John McCrank

TORONTO (Reuters) - The Canadian dollar held on to close higher against the greenback on Thursday, but much of the early gains that were built on a big current account surplus were eroded by a sharp pullback in the price of oil.

Domestic bond prices fell along with the bigger U.S. market as growing concerns about inflation had investors betting on higher interest rates in the not too distant future.

The Canadian dollar closed at US$1.0110, valuing a U.S. dollar at 98.91 Canadian cents, up from US$1.0102, valuing a U.S. dollar at 98.99 Canadian cents, at Wednesday's close.

The currency climbed as high as US$1.0179, valuing a U.S. dollar at 98.24 Canadian cents, after Statistics Canada data showed the country's current account surplus soared to C$5.56 billion in the first quarter, helped by higher prices for energy and agricultural exports. That beat the C$2.90 billion surplus expected by analysts surveyed by Reuters.

Statscan also revised the fourth-quarter current account figure to a C$778 million surplus from a C$513 million deficit.

"The reports of the death of Canada's current account surplus, as the saying goes, were greatly exaggerated," Michael Gregory, senior economist at BMO Capital Markets, said in a note. "Rising commodity prices literally raised it from the dead, and should provide life support in Q2 as well."

The currency came under pressure however as the July oil price fell $4.41, or 3.37 percent, to settle at $126.62, despite figures showing a drop in U.S. crude supplies.

"The inventory data by itself was positive for oil, but then there were stories that the huge drawdowns in inventories were more due to delays in shipments rather than an actual and prolonged drawdown," said Matthew Strauss, senior currency strategist at RBC Capital Markets.   Continued...

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal in this April 28, 2006 file photo. REUTERS/Shaun Best</p>