Canadian dollar tops parity as oil prices rally

Tue Jan 29, 2008 9:43am EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rose above parity versus the U.S. dollar on Tuesday morning for the first time in three weeks as the commodity-linked domestic currency drew support from higher oil prices.

Domestic bond prices were lower across the curve as a more stable equity environment reduced investor appetite for the security offered by government debt.

At 9:10 a.m., the Canadian currency was at US$1.0040, valuing a U.S. dollar at 99.60 Canadian cents, up from C$1.0044 to the U.S. dollar, or 99.56 U.S. cents, at Monday's close.

Earlier it rose to US$1.0055, valuing a U.S. dollar at 99.45 Canadian cents, marking the domestic currency's highest level since January 8.

Triggering the Canadian currency's overnight gain was a rise in U.S. crude prices above $91 a barrel and, to a lesser extent, widespread expectations for the U.S. Federal Reserve to cut interest rates on Wednesday.

"We're seeing a bit of strength in the Canadian dollar in part as oil prices are moving up a bit and that's offering some support," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"As well, with the weak U.S. housing numbers out yesterday that's kind of reinforcing expectations that you're likely to see the Fed go again coming out of this week's FOMC meeting, so again that's probably facilitating some of the strength."

Economic data from the United States on Monday showed December new home sales missed estimates, which supported calls for more Fed rate cuts and weighed on the greenback.   Continued...

<p>A graph showing world interest rates from 2000 to now. REUTERS/Graphics</p>