- Pares gains on U.S. dollar after Fed opens door to rate rises
- Risen from 11-year low earlier this year along with crude
The Canadian dollar rose against all its major peers as the price for crude oil, one of the nation’s largest exports, posted its biggest gain in two months.
The currency pared gains versus the U.S. dollar after the statement accompanying the Federal Reserve’s rate decision left open the possibility that policy makers may raise the benchmark U.S. interest rate from near zero before year-end. Crude oil’s slump this year pushed Canada’s economy into contraction in the first half and sent its currency to an 11-year low. The loonie has since risen along with crude.
"Really what’s going on is oil," said Charles St-Arnaud, a Canadian economist at Nomura Holdings Inc. in London. "What we export is now of higher value. For each barrel of oil you get more money, and that money needs to be transferred into Canadian dollars. It creates in a way higher demand for the Canadian dollar."
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, gained 0.4 percent, at C$1.3218 per U.S. dollar at 2:16 p.m. in Toronto. One loonie buys about 76 U.S. cents. Before the Fed statement, it was up as much as 1.4 percent.
The North American benchmark crude oil grade was up 2.5 percent to $45.70 per barrel in New York.
Nomura’s St. Arnaud said he forecasts the currency will weaken to C$1.32 per U.S. dollar by year end, and further to C$1.35 by the end of next year as the Fed does eventually raise rates. The median forecast among strategists surveyed by Bloomberg calls for the currency to fall to C$1.33 per U.S. dollar by year-end.
"To be really positive for the Canadian economy you would need a sustained increase in oil, probably going back to $60 per barrel, which is not something we really foresee," he said. "The Canadian economy will likely continue to remain slightly on the back foot."