News Column

Canadian dollar gains amid higher oil, geopolitical unrest in Iraq

June 12, 2014

Linda Nguyen, The Canadian Press

TORONTO - The Canadian dollar rose Thursday, pushed up by rising gold prices amid unrest in Iraq and fears that oil supplies may soon be disrupted.

The loonie gained 0.09 of a cent to 92.11 cents US.

The July crude contract on the New York Mercantile Exchange advanced $1.85 to US$106.25 barrel as an Al Qaeda-inspired group that captured two key cities in Iraq earlier this week vowed Thursday to march on to Baghdad.

One of the two cities that were invaded, Mosul, lies in an area that is a major gateway for Iraqi oil. While the loss of the city has no immediate effect on oil exports, now at over 3 million barrels a day, it adds to concerns over security and the country's plans to expand oil production.

The instability in Iraq comes as the Organization for Petroleum Exporting Countries met in Vienna and agreed to keep their output target unchanged at 30 million barrels a day.

Traders interpreted the decision as recognition within OPEC that most members would not be able to substantially increase output in the short-term even if the world's demand for crude increases.

Scotiabank's Camilla Sutton cautioned that rising oil prices do not always sustain a higher Canadian dollar.

"Drivers of a vaguely strong CAD have been rising oil prices — however upward oil prices on the back of geopolitical risks have traditionally been less supportive of a higher CAD than rising oil prices on the back of strong demand," Sutton, chief FX strategist, managing director of Scotiabank Global Banking and Markets, wrote in a note.

Meanwhile, a report from the U.S. Energy Department released late Wednesday also showed signs that oil supplies may be low. The department says supplies fell by 2.6 million barrels in the week ended June 6, more than double the 1.2 million barrels analysts expected.

In other commodities, August gold bullion gained $4.30 to US$1,265.50 an ounce, while July copper declined by a penny to US$3.04 a pound.

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Source: Canadian Press DataFile

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