Canadian dollar ends down despite record oil price

Wed Jan 2, 2008 4:29pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar closed lower against the U.S. currency on Wednesday as investors shied away from risky assets, but a jump in oil prices to $100 a barrel and record high gold prices helped cushion its fall.

Domestic bond prices finished higher across the curve as the latest piece of economic data from the United States upped the chance for a Federal Reserve rate cut this month.

The Canadian dollar closed at US$1.0072, valuing a U.S. dollar at 99.28 Canadian cents, down from US$1.0087, or 99.13 Canadian cents per U.S. dollar, at Monday's close.

The positive commodity backdrop helped propel the Canadian dollar to a session high of US$1.0130, or 98.72 Canadian cents per U.S. dollar, but it reversed course as investors unloaded cyclical currencies like the Canadian dollar.

"Strength in risk-aversion trades, being the unwind of the carry trade and reduction of equities globally, are being met with cyclical currencies being sold off," said Jack Spitz, director of foreign exchange at National Bank Financial.

"What's holding Canada in to some degree is the fact that correlated markets, both crude and gold, are trading at record highs ... but it's not translating into record strength for the Canadian dollar."

Canada is a major producer and exporter of both oil and gold, and the performance of its currency often mirrors the direction of prices for the two commodities.

And even though the currency was unable to cash in on an ideal commodity backdrop on Wednesday, Spitz suggested it could get a boost later in the week if key U.S. data comes in weak and rattles the greenback.   Continued...