Libya uprising puts Canadian dollar in a tight range

Wed Feb 23, 2011 4:46pm EST
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By Claire Sibonney

TORONTO (Reuters) - Canada's commodity-driven currency was little changed against the U.S. dollar on Wednesday as investors weighed market fears over Libya's violent uprising against a surge in oil prices.

U.S. crude prices surged to a 28-month high of $100 a barrel as the revolt in OPEC producer Libya caused a cut in output there and investors bet the unrest could spread to other oil exporters in the region.

Stronger crude prices typically help the Canadian dollar as Canada is a significant oil exporter. But rising oil prices have also fanned concerns that they could inspire inflation, which might hamper global economic recovery.

"Canada is flat. We're struggling between the jump higher in risk aversion over the last couple days versus the jump higher in oil prices," said Camilla Sutton, chief currency strategist at Scotia Capital.

U.S. stocks tumbled for a second day on Wednesday as the spike in oil drove investors to seek safer-haven assets and fueled worries of a market correction.

"Markets are really just trying to digest what higher oil prices mean," Sutton said. "Is it good for Canada in the sense that it brings in more revenues to the West and oil exporting provinces or is it actually negative in the sense that it weighs on the fragile U.S. recovery?"

The dramatic rally in oil dragged broadly on the U.S. dollar as higher energy costs tend to ripple through the economy, pushing up the costs of utilities, manufactured goods and transportation.

As investors shunned the greenback, another safe-haven currency, the Swiss franc, neared a record high, while the euro and sterling also rose on the back of heightened expectations that interest rates will rise faster in the euro zone than in the United States.   Continued...