The Canadian dollar pushed to a high near 0.9055 against the US dollar on Wednesday, temporarily extending gains to fresh 50-year highs against the US unit.
The local currency then fell rapidly to lows around 0.94 in North American trading. The Canadian dollar was undermined by a drop in oil prices while there was also a sharp increase in risk aversion as stock markets fell heavily led by a rapid retreat on Wall Street.
There will be further concerns that the raid currency gains will destabilise Canadaâ€™s industrial sector. Canadian Prime Minister Harper warned that the currency's rapid increase required a period of reflection and there will be speculation over a move to intervene and sell the local currency, although the central bank will be reluctant to take independent action unless there are wider G7 measures to support the US currency.
US dollar confidence will remain very fragile and there is likely to be Canadian dollar buying support on dips. The principal feature is likely to be a sustained increase in volatility with short-term US dollar selling realistic on any move towards 0.95.