Dollar sags as oil weakens

Wed Oct 7, 2009 5:22pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canada's currency fell against the U.S. dollar on Wednesday after earlier touching a one-year high, as weakening oil prices and a mixed showing on stock markets dragged the unit lower.

The currency turned south at midday as risk appetite waned, with U.S. stocks tepid after two days of strong gains, even as Toronto stocks staged a late session rally.

The Canadian dollar, like the equity market, often strengthens or falls depending on the risk appetite of international investors.

The currency's weaker performance boiled down to it being a day of consolidation, said Camilla Sutton, currency strategist at Scotia Capital.

"We had a very big move yesterday across asset classes. Today we've had a little bit of give back," she said.

Earlier on Wednesday, the Canadian dollar shot up to 95 U.S. cents on an upbeat tone that spilled over from Tuesday when the Reserve Bank of Australia raised rates, becoming the first central bank in the Group of 20 nations to tighten policy as the financial crisis abates.

The Australian move fed hopes that the global economy is recovering and will boost equity markets and demand for commodities, which also helped to send gold to a record high above $1,048 an ounce.

But oil prices slipped below $70 a barrel on Wednesday, boosted in part by a rebound in the greenback, which rose as the optimism that followed Australia's rate hike dissipated and traders saw the currency's decline as being overdone.   Continued...

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