Canadian dollar gains amid higher oil prices, geopolitical unrest in Iraq
TORONTO - The Canadian dollar rose Thursday, pushed up by rising gold and oil prices amid a warning from the Bank of Canada over the hot housing market and consumer debt.
The loonie gained 0.10 of a cent to 92.12 cents US.
The central bank's latest semi-annual review of the financial system concedes that the probability of a sharp housing correction, particularly in prices, is small â€” but said the consequences of a crash would be large, especially for those with high levels of debt.
Although the housing market appears headed for a soft landing, the risk of failure in the Chinese financial system and higher long-term interest rates in the U.S. are among things outside Canada's control that could trigger a crash.
Meanwhile, in commodities, the July crude contract advanced $2.13 to US$106.53 a barrel as an al Qaida-inspired group that captured two key cities in Iraq earlier this week vowed Thursday to march on Baghdad.
One of the two cities that were invaded, Mosul, lies in an area that is a major gateway for Iraqi oil. While the loss of the city has no immediate effect on oil exports, now at over three million barrels a day, it adds to concerns over security and the country's plans to expand oil production.
The instability in Iraq comes as the Organization for Petroleum Exporting Countries met in Vienna and agreed to keep their output target unchanged at 30 million barrels a day.
Traders interpreted the decision as recognition within OPEC that most members would not be able to substantially increase output in the short-term even if the world's demand for crude increases.
Scotiabank's Camilla Sutton cautioned that rising oil prices do not always sustain a higher Canadian dollar.
"Drivers of a vaguely strong CAD have been rising oil prices â€” however upward oil prices on the back of geopolitical risks have traditionally been less supportive of a higher CAD than rising oil prices on the back of strong demand," Sutton, chief FX strategist and managing director, Scotiabank Global Banking and Markets, wrote in a note.
A report from the U.S. Energy Department released late Wednesday also showed signs that oil supplies may be low. The department says supplies fell by 2.6 million barrels in the week ended June 6, more than double the 1.2 million barrels analysts expected.
In other commodities, August gold bullion gained $12.80 to US$1,274 an ounce, while July copper declined three cents to US$3.02 a pound.
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