Central bank report helps push C$ to 7-week high

Thu Jul 23, 2009 7:45pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar rose to its highest level in seven weeks on Thursday, as equity markets rallied on hopes for a global economic recovery and after the central bank said Canada's economy will pull out of recession this quarter.

The Bank of Canada, in its Monetary Policy Report, also said the world economy has likely averted a worst-case scenario and is bottoming out.

Following the report, the Canadian dollar rose as high as C$1.0841 to the U.S. dollar, or 92.24 U.S. cents, its highest level since June 3.

"The stunning part of the report was the forecast," said Andrew Pyle, a wealth advisor at Scotia McLeod.

"The shift in the bank's forecast in terms of calling an end to the recession, it definitely took the currency market by surprise."

As well, the market was somewhat reassured after the central bank highlighted that the rise in the Canadian dollar has been primarily driven by higher commodity prices and general weakening in the U.S. dollar.

The Canadian dollar finished at C$1.0865 to the U.S. dollar, or 92.04 U.S. cents, up from C$1.0985 to the U.S. dollar, or 91.03 U.S. cents, at Wednesday's close.

The bank had earlier stated that the rise in the currency could effectively fully offset any improvement in the economy, but that position appears to have eased, said Peter Buchanan, senior economist at CIBC World Markets.   Continued...