Canadian dollar less than cent and a half from parity

By Frank Pingue
Reuters
via Yahoo News
Tuesday, September 18, 2007

http://news.yahoo.com/s/nm/20070918/wl_canada_nm/canada_markets_canada_d...

TORONTO -- The Canadian currency shot to within a "heartbeat" of parity with the U.S. dollar on Tuesday due to an aggressive rate cut by the U.S. Federal Reserve and lofty commodity prices.

Domestic bond prices were mixed as the short-end rallied after the Fed's rate cut and the long-end dipped as the U.S. central bank rekindled worries about inflation.

The Canadian dollar closed at C$1.0138 to the U.S. dollar, or 98.64 U.S. cents, up from C$1.0280 to the U.S. dollar, or 97.28 U.S. cents, at Monday's close.

During the session the Canadian dollar had been enjoying meaty gains as oil prices hit a record high near $82 a barrel while gold remained near a 16-month high.

Anticipation of a Fed rate cut was also supporting the currency for the first half of the session, which saw the Canadian dollar hit a 30-year high against the greenback for the fourth straight session.

But the Fed's decision to cut its overnight rate by 50 basis points instead of the 25 points that many in the market had anticipated, helped the Canadian dollar push closer to parity, a level not reached since November 1976.

It hit a session high of C$1.0128 to the U.S. dollar, or 98.74 U.S. cents, its highest level since January 1977.

"It had gotten a boost by the latest run up in oil prices and also in anticipation of the rate cut," said Doug Porter, deputy chief economist at BMO Capital Markets. "But the Fed's bold move just sent the currency on yet another rocket ride and parity is just a heartbeat away now."

The Fed rate cut narrowed the Canada-U.S. rate gap in favor of the Canadian dollar. The Bank of Canada is widely expected to leave its overnight rate at 4.50 percent through 2007.

The next boost for the Canadian currency could come on Wednesday when August consumer price index data is released. The data is the second key report from August, when credit markets began to experience serious liquidity problems stemming from the U.S. subprime mortgage market.

There is also a chance the Canadian dollar could attract attention during the overnight session and reach parity.

"The currency just seems to be focusing in on parity like a laser beam," said Porter. "It could move independently even if the U.S. dollar itself isn't particularly weak overnight."

The all-time high for the Canadian dollar was reached in August 1957, when it was worth $1.0614, according to the Bank of Canada's Web site. ...

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