The U.S. dollar appreciated strongly against the Canadian dollar Monday morning and was trading at 1.2740 by 11 a.m.
Oil prices retreated from record highs Monday morning, after Nigerian rebels withdrew threats to sabotage oil operations and oil companies in Nigeria's delta region considered returning back to work. While oil prices are still close to US$50 per barrel, the decline is good news for the U.S. economy. Analysts generally expect solid U.S. economic growth during the coming months and forecast the Federal Reserve Bank's overnight lending rate to rise one more time by the end of this year. The bank will hold two more meetings this year to discuss a possible change in U.S. interest rates.
The Bank of Canada's overnight lending rate is forecasted to rise two more times this year as the bank seeks to ease monetary stimulus to the economy. During the second quarter, Canada's economy expanded at an annual rate of 4.3 per cent. It was the fastest pace of economic expansion in two years. While a faster pace of interest increases in Canada is supportive of the Canadian dollar, market participants had already priced in these rate hikes during recent weeks. While the domestic currency reached its highest level against the U.S. dollar in 11 years last week, investors are now moving out of the Canadian dollar.
The euro also rose strongly against the Canadian dollar Monday morning. The increase in the euro, however, only made up for losses taken earlier during overnight trading. By 11 a.m. the euro was trading at 1.5620. The initial drop in the euro came on the heels of remarks by European Central Bank (ECB) President Jean-Claude Trichet, who stated that the bank would take the impact of higher oil prices on economic growth into account when setting interest rates. These remarks cemented views among analysts that the bank would not increase its overnight lending rate until the beginning of 2005. The ECB will hold its next interest rate policy meeting on Oct. 7.
Market Report given by Roman Muhlbauer, Commercial Trader, Accu-Rate Corp.
2573 Carling Ave. Ottawa, ON K2B 7H7
Tel: (613) 596-0612
E-mail: roman@accu-rate.ca
