Loonie soars above 78 cents US as oil pushed higher

TORONTO – Positive sentiment continued to run high in Toronto and New York on Tuesday, where both the TSX and the Dow finished with healthy three-digit gains and the Canadian dollar bounced to levels not seen in nearly nine months.

The loonie advanced for a third consecutive trading day, climbing 0.85 of a U.S. cent to 78.38 cents US. The last time the loonie closed above this level was on July 14 when it finished at 78.49 cents US.

READ MORE: Bank of Canada survey: How has the oil-price shock affected Canadian firms?

John O’Connell, chairman and chief executive at Davis Rea Investment Counsel, said a weakened U.S. dollar coupled with higher commodity prices are the main reasons the currency – up more than two cents in the last three days – is enjoying its recent boost.

He said traders have been too bullish on the greenback and now that that it is declining amid burgeoning oil prices, the loonie is reaping the benefits.

“We actually think the Canadian dollar is getting a cyclical bounce here based on commodities,” said O’Connell.

“(It’s) mildly overvalued here because Canada still has problems. But it’s a country that is viewed as a safe haven from a geopolitical perspective and so currencies when they move, they can move rather dramatically.”

Tweet This Click to share quote on Twitter: "We actually think the Canadian dollar is getting a cyclical bounce here based on commodities," said O'Connell.</p><p>"(It's) mildly overvalued here because Canada still has problems. But it's a country that is viewed as a safe haven from a geopolitical perspective and so currencies when they move, they can move rather dramatically."

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The May contract for North American benchmark crude rose $1.81 to US$42.17 a barrel, ending the day at a level not seen since November.

Investors were encouraged after Russia’s Interfax news agency reported that there was a possible the deal between Russia and Saudi Arabia to freeze oil output. The news comes days ahead of a highly-anticipated meeting between OPEC ministers on Sunday in Doha, Qatar.

WATCH: U.S. tourism industry trying to woo Canadians despite low loonie

4:05 U.S. tourism industry trying to woo Canadians despite low loonie

The aim of the meeting is for a deal to be reached between the oil-producing countries to freeze production in hopes of boosting prices. Crude has fallen sharply since trading at more than US$100 a barrel in 2014.

O’Connell said the “shift in sentiment” on oil prices is helping drive up the Canadian dollar, but some factors need to change if positive energy prices are to be sustained.

“What you need for the oil price to improve on a fundamental basis is a continuing trend of declining production in North America, which is occurring, and at an accelerating pace, and a continuing trend of gasoline and energy demand,” he said.

Tweet This Click to share quote on Twitter: "What you need for the oil price to improve on a fundamental basis is a continuing trend of declining production in North America, which is occurring, and at an accelerating pace, and a continuing trend of gasoline and energy demand," he said.

Energy stocks were also credited with helping provide support to the S&P/TSX composite index in Toronto, as it rocketed 158.66 points to 13,581.42.

In New York, the Dow Jones industrial average also enjoyed a strong triple-digit gain, up 164.84 points at 17,721.25, while the broader S&P 500 also rose 19.73 points to 2,061.72. The Nasdaq composite added 38.69 points to 4,872.09.

Elsewhere in commodities, May natural gas rose nine cents to US$2 per mmBtu, May copper advanced six cents to US$2.15 a pound and June gold rose $2.90 to US$1,260.90 a troy ounce.