Canadian Dollar Close to Parity On Rising Oil

USD/CAD dropped down to 1.0063 before retreating. The loonie enjoyed rising oil prices and is awaiting another important event apart from the American decision on QE2. Update.

The Canadian dollar made nice gains against the US dollar. The greenback retreated across the board, with AUD/USD around parity, EUR/USD rising above 1.40 and GBP/USD breaking resistance.

A more important factor for the Canadian dollar is the rising price of oil. Crude oil now trades at $84.32, after peaking above $85. This is the highest level since the beginning of May – a six month high. This jump comes after a moderate start to the week in oil.

Canada’s oil exports make the currency quite vulnerable to changes in oil prices, especially as oil prices get out of range.

Below parity, the year-to-date low of 0.9930 is the next support line for USD/CAD. It’s followed by 0.98 and 0.97. A huge quantitative easing program in the US (dollar printing) can send USD/CAD towards these levels. Above, 1.01 is a minor barrier, followed by 1.02, which was the 2009 low. These levels can be breached if Ben Bernanke prefers a moderate bond buying program.

See more levels in the recent Canadian dollar outlook.

But apart from the American decision at 18:15 GMT, there’s another special event awaiting the Canadian dollar – Jamie Coleman reports that the decision about the huge BHP/Potash deal, will be reported at 20:30. A cancellation of this deal by the government will weaken the loonie, while an approval will boost it.

Anyway, the proximity to parity puts USD/CAD in an interesting position towards the FOMC meeting.

More on the big quantitative easing event:

• QE2 Expectations Narrowing
• 5 Scenarios for QE2

Will the Canadian dollar be worth more than one American dollar on the long run? Or this move temporary, as previous moves were?

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