Dollar rises as oil gains on Mideast fears

Unrest in the Middle East combined with other factors Thursday to push the Canadian dollar to a two-month high.
A worker checks the oil separator facilities in Azadegan oil field, near Ahvaz, Iran. Israel has blamed Iran for a terrorist attack Wednesday in Bulgaria. (Vahid Salemi/Associated Press)

Unrest in the Middle East combined with other factors Thursday to push the Canadian dollar to a two-month high.

The loonie closed at 99.23 US, up 0.29 of a cent, its highest close since May 15.

It was buoyed by rising prices for oil — Canada’s number one commodity export — continued hopes of stimulus measures by the governments of the U.S. and China and positive views on the Canadian economy.

August oil hit an eight-week high and closed up $2.79 at $92.66 US barrel, both on speculation of renewed stimulus and on concern about instability in the Middle East.

Prime Minister Benjamin Netanyahu has promised to "extract a heavy price" from the backers of a terrorist attack that killed five Israeli tourists in Bulgaria on Wednesday and which he blamed on Iran.

'It's raised the fear quotient.'—Tom Kloza, Oil Price Information Service

At the same time, there are rising concerns that the uprising in Syria is at a tipping point, after Wednesday's suicide bombing in Damascus that killed three members of the regime's inner circle.

"It's raised the fear quotient," said Tom Kloza, chief oil analyst at the Oil Price Information Service.

"It's going to translate to upward pressure at the pump," said Jim Ritterbusch, an independent oil trader and analyst. But the rise won't likely be dramatic — or long-lived. The growth in global demand for oil has weakened in recent months as the economies of the West have sputtered and China's economic growth has slowed.  And oil supplies remain high because output has risen in Saudi Arabia, Libya, the U.S. and elsewhere. "There's stagnant demand, and lots of supply," said Judith Dwarkin, chief energy economist at ITG Investment Research in Calgary.

Yesterday, Bank of Canada governor Mark Carney said its view of the economy is positive enough to consider a gradual rise in its key lending rate through 2014.

That view was supported by Thursday’s release of data by Statistics Canada showing wholesale prices rose 0.9 per cent in May, compared with a month earlier, to $49.8 billion. The biggest advance came in cars, computer parts and the food industry.

With files from The Associated Press