Canadian dollar firms but rising oil loses some punch

Wed Mar 2, 2011 5:30pm EST
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By Ka Yan Ng

TORONTO (Reuters) - The Canadian dollar rose slightly against its U.S. counterpart on Wednesday, and reverted to trading in a tight range as support from stronger oil prices lessened.

The Canadian currency finished at C$0.9724 to the U.S. dollar, or $1.0284, up from Tuesday's North American close of C$0.9749 to the U.S. dollar, or $1.0257.

Oil, a major Canadian export, provided some support as crude oil prices climbed on warnings by Libya that prices would rise and as government forces fought rebels. U.S. and Brent crude were both firmly above $100 a barrel.

But the influence of climbing oil prices appeared to be waning due to fears that too-strong crude prices could choke the global economic recovery.

"Oil prices in excess of $100 a barrel (are) not necessarily supportive for the Canadian dollar because it has negative implications for global growth and people don't believe these prices are sustainable above this point," said Shaun Osborne, chief currency strategist at TD Securities.

"So even with the WTI looking quite well's not necessarily translating into new highs for the Canadian dollar here."

With little economic data immediately ahead, the Canadian currency is expected to be fairly range-bound, said David Bradley, director of foreign exchange trading at Scotia Capital. He put the currency's range between C$0.9700 and C$0.9800 for the rest of the week.

"I think there's probably still plenty of interest on the top side around C$0.98 by sovereign-reserve types to buy Canadian dollar to diversify their foreign exchange holdings," Bradley said.   Continued...