BUSINESS

Canadian dollar surges almost a cent amid rising commodity prices

06/06/2012 08:56 EDT | Updated 08/06/2012 05:12 EDT
TORONTO - The Canadian dollar jumped almost a full US cent Wednesday as prices for oil and metals continued to recover from multi-month lows.

The commodity-sensitive currency was up 0.95 of a cent to 97.29 cents US as investors felt inclined to buy up riskier assets such as equities, commodities and resource-based currencies.

It had been lower earlier in the session after the European Central Bank failed to indicate some readiness to deal decisively with the region's debt crisis.

The July crude contract on the New York Mercantile Exchange closed up 73 cents to US$85.02 a barrel. Prices have been buffeted over the past few weeks as the worsening eurozone crisis has stalled an already fragile global economic recovery.

Prices for copper, viewed as an economic bellwether as it is used in so many applications, jumped nine cents to US$3.38 a pound.

Bullion prices also improved with the August contract ahead $17.30 to US$1,634.20 an ounce.

The ECB said earlier in the day that it was keeping its key rate unchanged at one per cent.

There had been hopes ECB president Mario Draghi would indicate the bank is prepared to cut the rate next month and at the same time approve more stimulus measures in an effort to spur governments to take action themselves, such as closer fiscal ties and the creation of a banking union.

Draghi told a news conference after the interest rate announcement that banks must further strengthen their balance sheets.

Many analysts expected that approach, saying that the bank’s inaction would spur political leaders to hash out some new framework.

Markets have been whipsawed over the last month by growing worries about the eurozone debt crisis, including the possibility that Greece could be forced to leave the monetary union. But concerns have greatly increased in recent days about the health of Spanish banks, which are loaded with billions of toxic loans as a result of the collapse of the country's housing sector.

Spain needs money to rescue its ailing banks, but can currently only receive such aid from the EU in a government bailout package. Madrid adamantly wants to avoid such a solution, as it would mean fellow eurozone countries and the International Monetary Fund would be allowed to impose fiscal policies on the country.

The country has been forced to pay higher interest rates on its debt, coming close last week to the seven per cent level, which is widely viewed as unsustainable.

The yield on Spain’s key 10-year bond edged down to 6.24 per cent Wednesday on hopes the European Union may be moving closer toward adopting measures that could alleviate the country’s financial crisis.

There are also hopes the U.S. Federal Reserve might provide more stimulus to its economy, supporting confidence in the global economy.