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The Canadian dollar has closed above parity with U.S. dollar for first time since November, 1976, closing up two-thirds of a cent at $1.0052 (U.S.).
The Canadian dollar vaulted back above parity early Friday and held on to its gains throughout the afternoon as commodity prices rallied and the U.S. currency continued to struggle.
The Canadian currency reached parity with its U.S. counterpart for the first time in 31 years on Sept. 20. Since then, it has risen above par during intraday trading a number of times but has failed to close above that level.
“Among the G-10 nation currencies, the Canadian dollar is used more than any other as a proxy for oil,” Rebecca Paterson, global currency strategist at J.P. Morgan in New York, said in an interview. “So when oil prices rise, anyone that wants to bet on oil and does not want to play the commodity market turns to the Canadian dollar.”
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The price of oil surged above $83 a barrel on Friday morning, closing in on its record high of $83.90, before falling back a touch in afternoon action.
Other commodity markets were also flirting with record territory Friday. Gold futures rose to a 28-year high topped $750 an ounce, while other precious metals like copper also rallied. Soaring oil and gas prices have bolstered Canada's economy and currency in recent years, leading the loonie to be dubbed the petro-currency.
The loonie's Friday gains came despite a report that showed the Canadian economy expanded just 0.2 per cent in July, a notch shy of the 0.4 per cent consensus forecast.
The Canadian loonie has surged 6.4 per cent in the third quarter of this year and more than 5 per cent this month, according to Bank of Montreal economist Douglas Porter. “The rise in the third quarter leaves it as only the third-strongest among the majors, with Norway's krone and the Japanese yen both rising a bit more,” he said.
In January, 2002, the loonie hit a record low of 61.79 cents. During the last five years, it has risen steadily, fuelled by strong commodity prices, a robust domestic economy and a slew of Canadian corporate acquisitions by foreign firms.
The beleaguered U.S. currency, meanwhile, slumped to a record low for the seventh straight day Friday against the euro after a U.S. government report showed core consumer prices had their smallest gain since February, 2004. The selling of the greenback has continued unabated in recent days amid speculation that the Federal Reserve will need to cut interest rates again to prop up the ailing U.S. economy and avert a meltdown.
Ms. Paterson, attributed the greenback's weakness to rates and risk appetite.
“The main thing today was that we had signs of benign U.S. inflation data and that made the market more comfortable that the Fed can afford to cut rates further and the prospect for lower yields is weighing on the dollar,” she said. “Broad investors sentiment is encouraging buying of higher-yield currencies ... and that risk appetite tends to weigh on the U.S. dollar.”
