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Canada dollar up on US dollar strength, merger talk

TORONTO: The Canadian dollar closed sharply higher on Friday as it benefited from the US dollar's strength against the euro and talk of foreign buying of Canadian companies, market watchers said.

"The big dollar has done well over the past few days, and it seems its rubbed off on the Canada - it's been swept up in that North American strength," said Tom Benfer, director of foreign exchange with Bank of Montreal.

The Canadian dollar closed at C$1.4495 (68.99 US cents) on Friday after closing at C$1.4548 (68.74 US cents) in the previous session.

Other market watchers said the Canadian dollar's ability to break free from its close linkage to the declining Australian dollar was crucial in setting the stage for its recovery this week. In just two days it has bounced back almost 200 points from the lows around C$1.4665 it reached on Wednesday.

Talk about foreign firms buying up Canadian companies was also cited as a positive for the currency through the latter part of the week, market watchers said.

"There's a whole discussion that perhaps there are some corporate transactions going through," said Avery Shenfeld, senior economist with CIBC World Markets Inc.

Canadian exporters interested in executing hedge-related transactions may also have been drawn into the market when the Canadian unit bumped into the C$1.4660 area earlier in the week, some market watchers said.

Shenfeld said he doesn't expect the recent upturn in the currency to prove sustained. "The selloff wasn't sustained, and I don't think the rally is anything other a return off that selloff," he said.

The Canadian unit will likely continue to wander in a range between C$1.4400 to C$1.4600, he added.

Statistics Canada releases fourth quarter gross domestic product and current account data on Monday.

In cross-trading against major currencies, the Canadian dollar was at 76.17 yen and at C$1.4102 against the euro. The Canadian dollar was at A$1.1221 against the Australian dollar.-Reuters