The value of Canada’s dollar approached 79 cents US for the first time in almost three years on Tuesday, as higher oil prices helped the loonie soar.
The loonie was changing hands at 78.95 cents US early in the afternoon, its highest level since April 2018.
The biggest catalyst for the move was the higher price of a barrel of oil, as the Organization of Petroleum Exporting Countries (OPEC) agreed to not flood the market with cheap oil for a little while longer.
The price of barrel of the North American oil benchmark known as West Texas Intermediate gained almost five per cent to trade above $50 US a barrel after Saudi Arabia and Russia avoided a breakdown of their deal to limit supply, which they have begrudgingly been doing for about a year now.
Oil also got a boom from data out of the U.S. that showed manufacturing activity rose to its highest level since 2018. A healthy manufacturing sector suggests the economy is recovering, which should increase demand for oil.
“Factory activity was still healthy in December and that is a good sign for the economy once we get beyond the COVID spike,” said Edward Moya, a market analyst with foreign exchange company Oanda.
As it often does, the loonie rode the wave of higher oil prices to new highs for itself.
After bottoming out in March below 69 cents US, the Canadian dollar has risen steadily ever since.
The start of the calendar year is often a strong time for the U.S. dollar, but that isn’t happening this year, said Shaun Osborne, Scotiabank’s chief foreign exchange strategist. After spending most of 2020 running for the safe haven of U.S. dollars, investors are starting to find their appetite for risk again, he said.
That’s one of the “key drivers for the [loonie] at present,” he said, “but we do feel that the [Canadian dollar’s] recent gains are largely justified by background fundamentals.”