Loonie gets boost from improved market sentiment

Mon Nov 24, 2008 3:25pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar was higher on Monday as prices for oil, a key Canadian export, rose while a more optimistic tone in the market took the shine off the U.S. dollar's safe-haven status.

Canadian bond prices were down across the curve as news that the U.S. government stepped in to prevent the collapse of the world's largest banking group prompted demand for recently beaten down equities.

At 10:10 a.m. (1510 GMT), the Canadian unit was at C$1.2542 to the U.S. dollar, or 79.73 U.S. cents, up from C$1.2772 to the U.S. dollar, or 78.30 U.S. cents, at Friday's close.

A North American equity market rally after news that the U.S. government said it would bail out Citigroup by agreeing to shoulder most of the bank's potential losses sparked a renewed bid for riskier assets.

The Canadian currency has been closely following moves in equity markets, where a string of losses had prompted a slew of risk-averse investors to embrace the greenback.

"We started off with a little bit of an optimistic tone and I think that's buoyed global prospects and provided a little bit of a lift for the Canadian dollar," said Michael Gregory, senior economist at BMO Capital Markets.

"But while the optimism may run for a day or two, the fact of the matter is things are falling off quite sharply."

Also offering support to the Canadian dollar was a rise in oil prices by more than a dollar a barrel given the prospect of a further OPEC supply cut.   Continued...