Oct. 14 (Bloomberg) -- Canada’s dollar advanced to the highest level in 14 months after crude oil, the nation’s largest export, and stocks climbed as investors sought assets that historically benefit when global demand rebounds.

“Higher oil prices are a real driver for the Canadian dollar, because Canada is a commodities player on a world stage,” said Eric Lascelles, chief economics and rates strategist at TD Securities Inc. in Toronto, a unit of Canada’s second-biggest bank.

Canada’s dollar has a 71 percent probability of reaching parity with the greenback by year-end, up from 61 percent yesterday, according to implied volatility from options trading monitored by Bloomberg. It last traded at C$1 per U.S. dollar in July 2008.

The Canadian currency, appreciating for the fifth straight day, gained as much as 0.7 percent to C$1.0252 per U.S. dollar, the strongest level since Aug. 1, 2008, and was up 0.6 percent to C$1.0257 at 4:39 p.m. in New York. It closed yesterday at C$1.0319. One Canadian dollar buys 97.49 U.S. cents.

A decline in imports by China, the world’s largest user of industrial metals, slowed more than forecast last month, according to the nation’s customs bureau. Canada generates more than half of its export revenue from raw materials including copper and gold. China’s imports fell 3.5 percent in September from a year earlier, compared with a 15 percent drop forecast in a Bloomberg News survey and a 17 percent decrease in August.

‘Favorable’ Environment

The data help “paint the picture of a favorable, medium- term environment for the Canadian dollar,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. Canada’s currency is also benefiting from “the general level of risk appetite that we are seeing, triggered by China’s strong imports data and good corporate earnings.”

The currency reached parity with the greenback in September 2007 for the first time in three decades, and then fell a record 18 percent last year on plummeting commodity prices.

“The gravitational pull toward parity is certainly intact, providing the U.S. dollar remains weak,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The momentum seems to be building on this trend.”

The Standard & Poor’s 500 Index, the benchmark for U.S. stocks, advanced 1.8 percent after Intel Corp.’s sales forecast and earnings from JPMorgan Chase & Co. beat analysts’ estimates.

Crude oil for November delivery rose 1.3 percent to $75.13 a barrel on the New York Mercantile Exchange after climbing earlier as much as 1.7 percent to $75.40 a barrel, the highest since Oct. 21, 2008. Canada is the biggest supplier of crude to the U.S., the world’s largest economy.

‘One Step Closer’

A break by oil through “strong resistance” at about $75 a barrel could spark a rally in the resource and push the Canadian dollar “one step closer to parity” with the U.S. dollar, said Christian Lawrence, a foreign-exchange strategist in London at RBC Capital Markets, a unit of Canada’s biggest bank, in a research note today. Resistance refers to the upper boundary of a trading range, where sell orders may be clustered.

The loonie, as Canada’s dollar is nicknamed for the aquatic bird on the C$1 coin, was the best performer over the past five days versus the greenback among the 16 most- traded currencies tracked by Bloomberg, gaining 3.5 percent. The U.S. dollar fell versus 14 of the 16.

The Canadian currency may have trouble trading stronger than support for the U.S. dollar at C$1.0255, Shaun Osborne, chief currency strategist at TD Securities, wrote in a research note today. Support is a chart level where orders to buy a currency or security may be grouped.

Bonds Fall

Canadian government bonds fell today, pushing the yield on the two-year note up four basis points, or 0.04 percentage point, to 1.70 percent. The price of the 1.25 percent security due in December 2011 dropped 9 cents to C$99.07.

The difference, or spread, between the overnight index swap rate and the Bank of Canada’s key interest rate touched 0.205 today, the widest since June 2008, according to Bloomberg data, indicating traders are the most bullish on interest-rate increases since the credit crisis began.

The central bank lowered the benchmark lending rate to 0.25 percent in April and pledged to keep it there through June 2010 unless the inflation outlook changes materially. Policy makers next meet on rates on Oct. 20.

Canadian sales of new motor vehicles fell by a seasonally adjusted 0.3 percent in August after a revised 5.2 percent increase in July as households purchased fewer North American- built passenger cars, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted sales would be unchanged, according to the median of 17 estimates.

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net

Last Updated: October 14, 2009 16:49 EDT