Crude Oil Drives Up Canadian Dollar

Wednesday, March 3rd, 2010

The Canadian dollar has rise again, this time largely on the increase in crude oil, as the currency reached its highest level in six weeks, and rose for the fourth day in a row.

After a statement from the Canadian central bank yesterday left out the previous comments on slow inflation being a key threat, it generated the assumption the bank will be raising interest rates sooner than originally thought.

The Canadian dollar has enjoyed an increase of 3.1 percent over the last four weeks against the U.S. dollar, only trailing Brazil's real as the strongest against the U.S. dollar during that period of time.

Although the Canadian dollar tracks equities, it seems its strongest tracking is in relationship to commodities, with oil being the major commodity tracked because it is the largest export of Canada.

While the gains are a source of general national pride for Canada, the reality is they don't want the Canadian dollar too strong against the U.S. dollar as it starts to have a negative effect on their exports and profits.

Overnight lending rates at the Bank of Canada remained unchanged at 0.25, still a record low for the central bank.

Another decision concerning rate changes won't be addressed until April 20, when the next decision is scheduled to be made. After that a Monetary Policy Report will be released with forecasts for the quarter, a couple of days after the interest rates meeting.

Many investors can make huge assumptions based on what a national bank may or may not say, so it's highly inconclusive whether this means the Canadian central bank will raise rates or not. But it does make one think if they did in fact communicate that by leaving out the concerns over creeping inflation.

Article by Gary B

The views expressed are the subjective opinion of the article's author and not of

Tags: bank of canada , canadian dollar , commodities , crude oil , crude oil prices , u.s. dollar

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