Dollar touches 3-year high

The Canadian dollar touched new three-and-a-half-year highs Wednesday amid record gold prices and steady oil prices.

Experts forecast $1.09 by end-2012

The Canadian dollar, affectionately referred to as the loonie, touched its highest level since November 2007. (Mark Blinch/Reuters)

The Canadian dollar touched new three-and-a-half-year highs Wednesday amid record gold prices and steady oil prices.

Experts see the loonie soaring even higher by the end of next year.

The currency closed up 0.37 of a cent at 104.12 cents US after trading as high as 104.5 earlier in the day.

But some analysts see the loonie climbing higher to near the $1.09 level by the end of next year as it continues its "slow, steady" appreciation.

Camilla Sutton, a currency strategist at Scotia Capital sees the loonie topping out at $1.05 by the end of this year and $1.09 by the end of 2012 helped by a soft U.S. green back and strong oil prices.

"Though some of the drivers are favouring a stronger CAD today than they did in 2007, some are also biased for a slightly weaker CAD. We believe that CAD is sustainable through parity and that USDCAD will close this year at 0.95 and next at 0.92, a pattern of slow and steady appreciation in CAD over time," Sutton said in a note to investors.

Helping the loonie's rise is the steady climb in world oil prices.

Oil prices hovered above $108 a barrel Wednesday, boosted by a weaker dollar and the unrest in Libya, even as a U.S. crude supply report showed mixed signals about demand.

Benchmark crude for May delivery closed up 49 cents at $108.83 a barrel on the New York Mercantile Exchange. The contract fell 13 cents to settle at $108.34 on Tuesday.

May Brent crude — the European benchmark — was down six cents at $122.14 a barrel on the ICE Futures exchange.

Oil rules

Doug Porter, deputy chief economist at BMO Nesbitt Burns, said the relationship between the dollar and oil prices is holding steady.

The economist notes that an old rule of thumb is that every $10 move in oil prices translates into a move in the Canadian dollar in the range of between three to five cents US, with the corollary that $100 crude equals parity for the loonie.

"Well, bingo — those rules seem to be holding quite well," Porter said in a report. "The Canadian dollar seems to be almost right where it should be based solely on oil prices."

The June bullion contract settled up $6.00 an ounce at $1,458.50.

Copper prices also advanced with the May contract in New York ahead five cents to $4.32 a pound.

The U.S. dollar also weakened against the euro a day before the European Central Bank is expected to make its first rate hike in nearly three years to deal with inflation. A quarter percentage point increase in the main rate to 1.25 per cent is fully priced in by the markets so investors will be more interested in what the central bank's president Jean-Claude Trichet says during his press conference.

Traders are also looking ahead to a solid Canadian employment report at the end of the week. Statistics Canada is expected to report Friday that the economy added about 30,000 jobs in March.

Meanwhile, purchasing activity in the Canadian economy topped expectations in March, according to the Ivey Purchasing Managers Index released on Friday. An index prepared by the Purchasing Management Association of Canada and the Richard Ivey School of Business, reported a rise to 70.8 in March on a seasonally adjusted basis up from 69.3. Analysts expected 62.0.

A reading of 50.0 indicates that activity remained flat from the preceding month, while a higher reading indicates an increase and a lower reading reflects a slowing or decrease.