The following is from the 25 February 2011 edition of "cbc.ca".

The Canadian dollar jumped one-third of a cent to a new three-year high above US$1.02 Friday morning even as oil prices have begun to stabilize on news Saudi Arabia intends to make up any supply disruptions out of Libya.

The loonie touched US$1.0203 at about 8 a.m. ET, its highest level since March 2008.

A major driver for this new strength is weakness in the U.S. dollar, Camilla Sutton, currency strategist with Scotia Capital, said in a report Friday.

"The U.S. dollar has managed to weaken in the face of rising risk aversion as rising oil prices are playing into several market fears," she said.

“The first is how it will impact global inflation and how central banks will react to it ... In addition, rising oil prices will weigh on the fragile U.S. recovery, which in turn could support an extended dovish stance from the Fed,” Ms. Sutton said.

Currency markets are keeping a keen eye on the Bank of Canada rate announcement on Tuesday.

“The Bank of Canada’s interest rate decision and statement will provide significant insight in to whether or not the market is correctly pricing the risks of a BoC hike this spring,” Ms. Sutton said.

All 39 forecasters surveyed by Reuters predicted the Bank of Canada would keep its key interest rate on hold at 1.0% on Tuesday. But 24 of poll participants, more than 60%, expect interest rates to rise by the end of the first half. The median forecast points to a quarter-point increase on May 31 to 1.25%.

But the strength of the currency will be a key factor in the bank’s decision.

In its January rate statement, the bank said the persistent strength of the currency, combined with Canada’s low productivity, was holding back the export recovery and contributing to a widening of the current account deficit.

In subsequent speeches, bank officials have suggested they are resigned to the strong currency as a permanent feature, urging companies to not base their business models on a weaker Canadian dollar.