The Canadian dollar briefly soared to new heights past $1.10 US early Wednesday before taking a sharp drop later in the day.

Shortly after the start of trading in North America, the loonie was up more than 1.75 cents US at $1.1027 US as the U.S. dollar sank even further on world currency markets.

'Given the speed of change, we could see a $1.15 US or $1.20 US [dollar].'—Derek Burleton, TD Bank senior economist

But by 4 p.m. ET, it had slipped back to close at $1.0775 US — down more than three-quarters of a cent from Tuesday — after oil prices backed off from earlier highs and stock markets slid.

"It was a particularly volatile day," said David Watt, a senior currency analyst with RBC Capital Markets.

"But the factors that led to the U.S. dollar weakness today continue to linger," he told CBC News.

The latest weakness in the greenback came after Chinese officals said they would diversify their $1.43 trillion US of foreign exchange reserves away from the U.S. dollar.

The U.S. dollar is "losing its status as the world currency," Xu Jian, a Chinese central bank vice director, told a conference in Beijing. Cheng Siwei, vice chairman of the National People's Congress, said China would "favour stronger currencies over weaker ones, and will readjust accordingly."

"The devaluation of the U.S. dollar is the story, the global
story," said MF Global analyst Kevin Grady. "The largest owners of U.S. dollars are our major trade partners. These guys are getting nervous, and I think what's starting to happen is these guys are starting to buy euros and gold."

Higher oil prices boosted the Canadian dollar early in the day before changing direction. The December futures contract for light sweet crude topped $98 US in early morning trading before sliding back to $96.37 US by 3 p.m. ET.

Gold closes at record

Gold also shot higher Wednesday as the U.S. dollar weakened, gaining $22 US to $845.40 US an ounce before retreating to a record high close of $833.50 US, topping the old mark set in early 1980.

The loonie's sharp moves were sending economists back to the drawing board to redo their dollar forecasts. The currency has appreciated much faster than most observers had been expecting.

"I've given up guessing in the short run," TD Bank senior economist Derek Burleton told CBC News on Wednesday. "There's nothing, I don't think, that's going to keep the U.S. dollar from weakening further in the very near term. Given the speed of change, we could see a $1.15 US or $1.20 US [dollar]," he said.

In Vancouver, where he was at a Board of Trade luncheon, Prime Minister Stephen Harper expressed concern at the pace of the loonie's recent rise.

"The appreciation we've seen is rapid by any standard,
unprecedented in its rapidity by any standard, and I think it
does require some reflection," he told reporters.

The Canadian dollar regained parity with the U.S. greenback in September. The loonie has been setting new records since Oct. 31, when it topped its previous modern-day high of $1.0614 US, which dated back to August 1957.

Since the start of the year, the Canadian dollar has risen by about 27 per cent against the U.S. currency.

(Wiht files from the Associated Press)