Loonie hits 2-month high above 78 cents US before slipping back

The Canadian dollar briefly topped the 78-cent US level Tuesdayas the U.S. dollar fell against many currencies and oil pricescontinued their recent rebound. But it lost some of thatgainlater in the session.

The loonietraded as high as78.12cents US inearly trading, up more thantwo-thirds of a cent from Monday's close. But it slipped back to close at 77.80cents US still up almost two-fifthsof a cent.

• Oil prices to hover around $50 this year, touch $60 by 2017, say energy analysts

Thatmarksthe seventh straight trading sessionin whichthe Canadian dollar has gained against its U.S. counterpart. According to Bloomberg, that's the loonie's longest winning streak since December 2012.

The loonie'sbig early gain was trimmedafter the release of a number of economic reports in Canada and the U.S.

Statistics Canada said manufacturing sales in June rose by a better than expected0.8 per cent. The U.S. Federal Reserve reported that factory output rose by 0.5 per cent in July its best performance so far this year andU.S. home construction last monthclimbed to a six-month high.

A risein crude oil futuresabove $46 US a barrel was credited as being one of the drivers of Tuesday's Canadiandollargain. But the loonie also rose becausethe U.S. dollar was broadly weaker following influential calls for the Fedto take a cautious approach when it comes to raising interest rates.

The September crude oil futures contract settled at$46.58US, up 84cents. The benchmark contract hasn't closed above the $46 level since July 12. Oil prices have risen almost $5US in the last six days.

"Oil prices and the outlook for relative central bank policy are providing for continued [Canadian dollar]strength," said a morning commentary from Scotiabankforeign exchange.

"The [U.S. dollar]is weakening broadly, ...falling materially against all of the G10 currencies as market participants respond toMonday'scautious commentary from San Francisco Fed President [John] Williams in which he called for a critical reassessment of prevailing policy frameworks."

The Canadian dollar last closed above 78 cents US on June 23.

Despite the loonie'simpressive rise of the past few months it has gained almost 10 cents since January many analysts don't see the current strength lasting.

CIBC World Markets, for instance, sees the loonie at 74 cents US by December, while TD Economics sees the dollar at 75 cents US by year-end.