Canadian dollar closes above 77 cents US as oil surges to $40

The Canadian dollar passed the 77 cents US mark on Thursday, its highest level of the yearamid a rise in oil prices and Wednesday's interest rate decision.

The loonietraded as high as 77.23 cents US its highest level since October before pulling back a little. At market close, the dollar was changing hands at 77.01 cents US, up 0.80 of a cent.That means the looniehas gained almost nine cents against the U.S. currency since January, and is now at its highest level of 2016.

Thursday's gain for the looniecame on the heels of an even bigger surge of1.37 cents US after the U.S. Fedannounced it would not raise rateson Wednesday.

TheU.S. central bank kept its benchmark interest rate steady in a range between 0.25 and 0.50per cent on Wednesday, but cut its forecast for how the U.S. economy will perform in the near term.

"The market is trying to digest exactly what's going on with the Fed," said John Burke, chief executive of Burke Financial Strategies in Iselin, New Jersey.

The price of oil, which is a key driver of the Canadian dollar, was also higher,closing up $1.67 US to $40.13, its highest level of the year.

"[The loonie]is trading at levels last seen in mid-October, with support from relative central bank policy as well as higher oil prices and risk appetite," Scotiabank said of the loonie's stunning two-cent rise within the span of barely 24 hours.

Oil rose Wednesday asQatar's top energy official confirmed OPEC member states and other major oil producers will meet inDohaon April 17to discuss a freeze on oil output.

Dollar could lose ground

There's two big factors lifting the loonie, said Charles St-Arnaud, foreign exchange strategist at Nomura in London.

"One is that the Federal Reserve yesterday decided to keep rates unchanged but alsoit revised quite significantly its outlook for its policy rate," he told CBC's The Exchange.

"On top of that in recent weeks we've seen a surge in the price of oil where now we're hitting $40 a barrel, which is the highest price we've seen since December."

St-Arnaud predicts the dollar will decline to the 73-cent US range as the U.S. Fed moves rates up and Canada deals with an uncertain economy.

"For manufacturers weaker would be better, but on the flip side, weaker means you have low oil prices and a negative impact on the resource sector," he said.

The good day for crude spilled over into the TSX, which gained 143 points to close at13,621.