Strength of loonie link to oil price tested

Wed Jun 11, 2008 6:26pm EDT
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By Lynne Olver

TORONTO (Reuters) - Is the Canadian dollar actually a petrodollar or is its link to record-high oil prices tenuous and temporary?

No clear answer emerged at investment conference in Toronto on Wednesday, but both sides of the argument were broached vehemently.

Although sometimes called a petrocurrency -- due to Canada's hefty energy exports and last year's close correlation with the oil price -- the Canadian dollar has not spiked in recent weeks even though crude oil ran up to a record of nearly $140 a barrel.

U.S. crude prices rose $5 to $136.38 a barrel on Wednesday, while the Canadian dollar, at 98.4 U.S. cents, is well off the $1.10 level it hit in November 2007, its strongest showing since the 19th century.

Dennis Gartman, the Virginia-based publisher of an investment newsletter, the Gartman Letter, told the conference that he's starting to get bullish on the Canadian dollar.

But Gartman also said he expects crude oil prices to fall to around $85 to $90 a barrel in a year, prompting John Embry, chief investment strategist at Sprott Asset Management in Toronto, to call Gartman's positions contradictory.

"In one breath, you just said the oil price is going to get crushed, and if the oil price gets crushed the Canadian dollar is going with it," Embry said.

But Gartman pointed out that Canada has other commodities that are in demand -- wheat, corn, canola, tungsten and copper, for instance.   Continued...

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