Loonie jumps to highest level in a year

Tue Oct 6, 2009 11:31am EDT
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar rose to its highest level in a year against the U.S. currency on Tuesday morning thanks to soaring commodity and equity prices and after Australia's central bank raised its key cash rate.

The Canadian currency touched a high of C$1.0564 to the U.S. dollar, or 94.66 U.S. cents, its highest level since October 1, 2008, on a string of factors set off by the Reserve Bank of Australia's decision, making it the first of the Group of 20 central banks to raise interest rates as the global financial crisis eases.

"We've had a perfect storm this morning for the Canadian dollar," said Camilla Sutton, currency strategist at Scotia Capital.

"If Australia is now viewing their market and the Asian market as growth returning to trend, that's positive for commodities. That, by default, would be positive for Canada."

The rate hike set off speculation on which central bank may raise rates next. Scotia Capital economists said the possibility of Canada following sooner than expected is "precisely nil" in their view.

The Bank of Canada earlier this year chopped its benchmark interest rate to a record low of 0.25 percent and pledged to keep it there until at least the middle of 2010, assuming inflation remains tame.

The Canadian dollar's move higher was supported by soaring commodity prices, with oil, a major Canadian export, rising above $71 a barrel, while gold hit a record high above $1,040 an ounce. The currency's moves are often influenced by prices for the two commodities.

As well, higher stock markets, typically a gauge of investors' willingness to take on risk, also supported the currency.   Continued...