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The Canadian dollar reached its highest point in more than two years on Thursday when the UK announced it had approved a coronavirus vaccine for emergency use and oil prices were supported by an apparent agreement between OPEC nations to extend their current production cuts last January.
The loonie at one point hit 77.61 cents in the United States, the highest level since October 2018.
A catalyst for the rise in the loonie has been word that members of the Organization of the Petroleum Exporting Countries and Russia are nearing an agreement to extend production cuts by more than seven million barrels a day after January.
Some members of the oil cartel have pushed for a three-month extension to May of the cuts, but given the recent rally in oil prices, the cartel has compromised to keep the cuts through February.
“This is pretty much what was expected from these talks, which is why oil prices continue to trade around the highs,” said Craig Erlam, an analyst at foreign exchange firm OANDA.
On Thursday, a barrel of West Texas Intermediate oil was trading above US $ 45, a level it did not reach and remained above since early March, when the pandemic blocked global energy demand.
Currencies benefit from the hope that the world economy will recover
The loonie is riding the wave of rising oil prices, but it is also benefiting from general US dollar weakness.
The Australian dollar, euro and Korean won also hit two-year highs against the US dollar on Thursday as the flight to the perceived safety of the US currency appears to be drawing to a close.
Britain has announced that it has approved Pfizer’s COVID-19 vaccine for emergency use, which has raised expectations that other nations may soon follow suit. This, in turn, is sparking hopes that the world economy will soon return to a semblance of normalcy.
“The big talk seems to be all about the UK getting ready to get the vaccine next week – faster than many people expected and it’s having an effect on pretty much everything,” said Michael Currie, vice president and consultant for the investments of TD Wealth.
Counterintuitively, this is bad news for the US dollar, which saw its value increase by around 13% during the pandemic because it is a perceived store of value. If things are really improving, there is less need to keep cash hidden in something as safe as a US dollar.
Loonie could be headed higher: analyst
Shaun Osborne, chief foreign exchange strategist at the Bank of Nova Scotia, says the loonie has appreciated about 10 cents since bottoming out in April, and thinks it can be argued that the loonie could be headed higher in the year. middle term.
“The US economy is likely to perform on par with the rest of the world [and] it could underperform Canada, “he said in an interview.
“A stronger global economy and greater demand for commodities … this is something I look forward to for the Canadian dollar [but] I think we’ll have to get through the next two or three months just to see how far this move can extend, ”Osborne said.
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