The Canadian dollar rose to parity against the US dollar for the first time since 1976 on Thursday, buoyed by soaring oil prices and broad-based weakness in the greenback.
Adam Cole, at RBC Capital Markets, said he expected the Canadian dollar to continue its upward path. “Canada produces the commodities the world wants – it is still the number one commodity play among major currencies.”
Mr Cole said that the Bank of Canada had been welcoming the currency’s strength.
He said the BoC had been happy to see the Canadian dollar appreciate. Prevented from raising interest rates at present by the recent turmoil on financial markets, the currency’s rise had helped the central bank in its fight against inflation.
Late in New York, the Canadian dollar rose 1.4 per cent to C$1.0012 against its US counterpart.
Elsewhere, the dollar dropped to a record low through the $1.40 level against the euro as the US currency continued its slide following the Federal Reserve’s decision to cut interest rates this week.
Traders said the euro’s rise through the psychologically important $1.40 level – seen as a pain barrier for eurozone exporters – triggered a host of stop-loss buying, sending the single currency higher.
The euro rose 0.8 per cent to $1.4071 against the dollar and rose 0.4 per cent to £0.7002 against the pound – having hit £0.7011, its highest level since January 2005 earlier in the session.
The dollar fell 0.4 per cent to $2.0093 against the pound, lost 1.5 per cent against the yen to Y114.44 and dropped 1 per cent to SFr1.1717 against the Swiss franc.
Some analysts put the dollar’s weakness down to speculation that Saudi Arabia was set to abandon its peg against the US dollar.
The talk was started after the Saudi Arabian Monetary Authority announced that it was not going to follow the Fed and cut interest rates in spite of the Saudi riyal’s link to the dollar.
Hans Redeker, of BNP Paribas, said Saudi Arabia not following the Fed’s lead was understandable given the rising inflationary pressure within its economy. “The currency peg will come under increasing pressure the more economic fundamentals of the region diverge from the recessionary US environment,” he said.
Marc Chandler at Brown Brothers Harriman said the dollar’s fall was a reflection of negative sentiment towards the dollar, and talk that Saudi Arabia would abandon its link to the US currency was wide of the mark.
The SAMA had subsequently announced that it held rates steady to combat domestic inflation, he said.
“SAMA did not follow the Fed with a rate hike last year and has repeatedly indicated it will not abandon the peg.”
