Canadian dollar climbs as oil heads toward $82

Tue Jan 5, 2010 4:34pm EST
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By Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar touched a 2-1/2-month high against the U.S. dollar on Tuesday as the greenback sagged and the commodity-linked currency got a lift from strength in oil prices.

Earlier in the session, the currency touched a high of C$1.0336 to the U.S. dollar, or 96.75 U.S. cents, its highest level since October 20.

The rise was aided by a higher price for crude oil, a major Canadian export, which marched toward $82 a barrel, boosted in part by frigid weather in the U.S. and Europe, which increased demand for heating fuel.

"What's happening is commodity prices are improving in the wake of continued recovery in the global economy," said Michael Gregory, senior economist at BMO Capital Markets, referring to recent manufacturing data from the U.S. and China.

"The industrial part of the global economy, which is the consumer of raw materials, is picking up and that ultimately provides support for commodities and the Canadian dollar. That's the fundamental theme."

The Canadian dollar finished at C$1.0390 to the U.S. dollar, or 96.25 U.S. cents, up from Monday's finish at C$1.0414 to the U.S. dollar, or 96.02 U.S. cents.

A trend of generally firmer equity markets at the beginning of the new year "lowered risk aversion, and that basically pushed the U.S. dollar and allowed the Canadian dollar to benefit," said George Davis, chief technical strategist at RBC Capital Markets.

As well, Canada benefited from a broadly weaker U.S. dollar, as softer than expected U.S. housing data dampened expectations the U.S. Federal Reserve could raise interest rates sooner rather than later.   Continued...

<p>A Canadian one dollar coin, also know as a loonie, is shown in Montreal in this April 28, 2006 file photo. REUTERS/Shaun Best</p>