The Canadian dollar soared to highs not seen in more than three years during trading on Wednesday, as the U.S. dollar slumped and oil continued to rise on world markets.
However, as European debt concerns centred on Portugal's solvency took effect later in the day, nervous investors looking for a safe haven flocked back to the U.S. dollar and pushed it higher before trading concluded, effectively pulling down the Canadian dollar slightly.
Still, the loonie closed up 0.37 of a cent Wednesday and ended the session at 104.12 cents US. Earlier in the day, the Canadian dollar peaked at 104.5 cents US, which a mark not reached since November 2007.
The ripple effect began when Portugal's prime minister stated that his debt-plagued country will ask for a bailout, as it struggles to raise much-needed cash.
Portugal's appeal is the third such request from a eurozone nation in recent years, following similar assistance for Greece and Ireland.
It's expected that Portugal will require an injection of around $110 billion to stave off looming debt issues, which threaten to bankrupt the government.
Still, part of the rising Canadian dollar can be attributed to swelling prices for crude oil, according to economists.
Oil prices rose this week to a two-and-a-half year high as global crude reserves dipped lower than expected. The current price of a barrel of oil stood at US$108.83 after rising 49 cents Wednesday.
Crude prices have also surged because of ongoing unrest in the Middle East, where concern continues to grow that the conflict in Libya could spread and paralyze production in Saudi Arabia and other key nations in the Persian Gulf.
Ian Lee, an economist at Ottawa's Carleton University, said the rising loonie is good news for both Canadian travellers heading abroad and importers, who will see their dollars go further south of the border.
Plus, consumers here will also see benefits at the supermarket, where prices have been on the uptick recently, Lee told Â鶹´«Ã½ Channel.
"This is going to moderate the increase in food prices," he said, noting that Canada imports much of its food from warmer nations.
On the other hand, a higher dollar means exporters and manufacturers in Canada will have a more expensive product in the U.S.
Still, Lee noted that the manufacturing sector in Canada has been strong as of late, and he added that it's likely the dollar's climb will "moderate toward the end of the year."
Meanwhile, the Bank of Canada will have a balancing act in the coming months as it mulls a move to increase interest rates and stave off inflation, said Lee.
Raising the key interest rate, which has been at historic lows over the past two years, could also "push up the Canadian dollar even more" as the government moves away from economic stimulus programs.
"It's going to be difficult," said Lee.
Camilla Sutton, a Scotia Capital currency strategist, predicted that the upward trend will continue for the Canadian dollar.
In fact, she said that at the end of 2012, the Canadian dollar will be perched well above its U.S. counterpart at $1.09.
The simple reason for the rise is that Canada's bullish economy is nearly unmatched among developed countries.
"Canada looks very attractive to investors. It's attracting money into the Canadian dollar. At the same time the U.S. dollar is looking less attractive," said TD Bank chief economist Craig Alexander.
Additionally, a recent report from the Organization for Economic Co-operation and Development predicted that Canada's economy will grow faster than any other country in the G7 in the first half of 2011.
With reports from CTV's Omar Sachedina and The Canadian Press
