Canadian dollar falls but still finishes above par

Tue Jan 4, 2011 4:41pm EST
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By Ka Yan Ng

TORONTO (Reuters) - The Canadian dollar finished lower against the greenback for the first time in 10 trading sessions on Tuesday, pulled down by retreating oil prices, but it still ended the day above par against the U.S. currency.

Canada is a major oil producer, and despite a slide of 2 percent in crude prices to below $90 a barrel, many investors expect the Canadian dollar to trade near par with the U.S. dollar for some time due to optimism about the world economy.

"If we continue to see some decent Canadian economic releases and no pain out of Europe, then the Canadian dollar will appreciate as long as we continue to see stronger oil and commodity prices," said John Curran, senior vice president at CanadianForex, noting the U.S. dollar had perked up.

"Markets are getting back to some sort of normalcy. A few of the other currencies have pulled it makes sense for the Canadian dollar to give up some of the ground it gained."

The currency finished above parity for a second session at C$0.9985 to the U.S. dollar, or $1.0015, but down from Friday's finish, when it ended the year at C$0.9946 to the U.S. dollar, or $1.0054.

During the Canadian dollar's trek above parity in the final trading sessions of 2010, investors cautioned that thin conditions exacerbated the move. A Reuters foreign exchange poll last month showed analysts expected the Canadian dollar would hover around parity for a good portion of 2011.

"It's fascinating to me that most of those fairly significant moves we saw last year ... basically have been maintained in early 2011. I think there's a little bit more meat on the bones than people give ... credit for," said Doug Porter, deputy chief economist at BMO Capital Markets.

The Canadian dollar shot as high as C$0.9889 to the U.S. dollar, or $1.0112, on Monday, when Canadian financial markets were closed. This represents a new technical support level for the U.S. currency against the Canadian dollar, said Adam Cole, head of global FX strategy at RBC Capital Markets in London.   Continued...

<p>Canadian currency in the form of one dollar coins, otherwise known as loonies, are displayed in this posed photograph in Toronto, October 22, 2008. REUTERS/Mark Blinch</p>