Canadian dollar revisits 2011 high, recent oil run-up supports
By Claire Sibonney
TORONTO (Reuters) - Canada's dollar revisited its 2011 high against the U.S. currency on Thursday, supported by oil's rise since the revolt in Libya started and prospect higher energy prices could spur tighter Canadian monetary policy.
The country's commodity-linked currency returned to its loftiest level in nearly three years even though oil pared gains following Saudi Arabia's assurances it could fill any Libyan supply shortfalls and unsubstantiated rumors Libyan leader Muammar Gaddafi had been shot.
Michael Gregory, senior economist at BMO Capital Markets, said the recent run-up in oil over Mideast tensions could still be having a lingering positive impact, something the central bank will weigh in its policy announcement on March 1.
"Since Canada is a net oil exporter, this extra boost we're going to get from higher oil prices specifically could provide that little extra wealth in income spreading across the country, and perhaps necessitate slightly more aggressive Bank of Canada policy over the next little while," he said.
A Reuters poll released on Thursday showed the central bank is unanimously expected to remain on hold on Tuesday, with the first interest rate hike of 2011 widely anticipated in May.
John Curran, senior vice president at CanadianForex, noted the currency's correlation to commodities has faded recently, but the Canadian dollar should ultimately benefit if investors see a sustained move higher in oil.
"We're kind of at the right levels for the Canadian dollar. ... and I think people are going to be careful not just to react to that one commodity," he said.
The Canadian dollar also benefited from broader weakness in the greenback on fears higher oil prices will hurt U.S. consumer spending. Continued...