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Canada dollar up, move linked to oil price climb

TORONT0: The Canadian dollar ended moderately higher on Wednesday, with some market watchers attributing the move to a firmer oil price outlook, while others said the move was driven mostly by technical factors.

"We basically blew through some stops," said one New York-based currency trader with a major Canadian bank.

"(The US dollar) couldn't go up. We had some selling interest up around (C$1.4600 or 68.49 US cents), it just couldn't break through and we seemed to get a bit of momentum on the downside," he added.

That triggered a fairly rapid climb by the Canadian dollar, which rose to a resistance level at C$1.4520 (68.87 US cents) in the early afternoon before stabilising around C$1.4530 (68.82 US cents) for the rest of the session.

The Canadian dollar closed at C$1.4536 (68.79 US cents) from Tuesday's C$1.4572 (68.62 US cents) close.

"I can't say it's a real surprise to us. I think we're just going to continue to drift here until we get the numbers tomorrow and on Friday," the trader added.

Market players are looking to the release of the US producer price index and retail sales data for December on Thursday and a speech by Fed Chairman Alan Greenspan Thursday evening for further clues about the direction of monetary policy in the US

Strong data out of the US could propel the Canadian dollar down to the C$1.4630 (68.35 US cents) level, which could set the stage for a descent as low as C$1.4700 (68.02 US cents), the trader said.

Sal Guatieri, senior economist with Bank of Montreal, said improved prospects for oil prices helped fuel the improvement in the Canadian dollar on Wednesday.

"It looks like oil prices have a firmer tone to them it's starting to sound like the OPEC nations will not be expanding production, so that seems to be supporting the currency today," he said.

News that building permit issuance increased by 4.0% in November, significantly exceeding the expected 1.0% rise, was also credited by some analysts with helping the currency strengthen, but Guatieri questioned the data's impact.

"That's a fairly minor indicator; I don't know if the markets would have picked up on that," he said.

Firmer commodity prices and strong economic fundamentals suggest the Canadian currency will continue to climb in 2000, Guatieri said. "Generally our view is that the Canadian dollar is poised to strengthen through this year," he said.

In cross-trading against major currencies, the Canadian dollar was at 72.85 yen and at C$1.4976 against the euro. The Canadian dollar was at A$1.0440 against the Australian dollar.-Reuters