Sliding U.S. dollar pushes TSX higher

The U.S. dollar continued its slide Monday and gold moved further intorecord territory.

The dollar started falling after Federal Reserve official James Bullard said the central bank should continue to buy mortgage-backed securities after the program is supposed to expire in March. That would continue to keep interest rates low.

The U.S. dollar traded lower against six other major currencies. The Canadian dollar closed up1.24 cents to 94.71 cents US in morning trading.

Commodities which are priced in U.S. dollars also moved higher.

Commodities were also boosted by improved hopes of economic recovery on word of an increase insales of existing U.S. homes. Purchases rose 10.1 per centin October to a 6.1-million annual rate the highest level since February 2007 partly because ofa tax credit aimed atfirst-time buyers, according to the National Association of Realtors. The median sales price decreased 7.1 per cent.

Gold soared to a record.

December bullion futures rose as high as $1,174 overnight and finishedup$17.90to$1,164.30 an ounce in New York.The metal was helped, too, by word from Russia's central bank that it increased its gold holdings last month by half a million ounces to 19.5 million ounces.

Crude oil Canada's largest export rose with the December contract adding 84cents to settle at $77.56 US a barrel on the New York Mercantile Exchange.

The upward move in commodities helped the Toronto stock market, with its many mining and energy stocks. The S&P/TSX composite index closed up 44.69 at11,624.02.

Scotia Capital currency strategist Camilla Sutton told CBC News thatcentral banks are moving away from the U.S. dollar as a reserve currency and into gold.

'We're in the midst of a long-term U.S. dollar weakening trend' Camilla Sutton,currency strategist, Scotia Capital

"We're in the midst of a long-term U.S. dollar weakening trend," she said. "We'll close next year at lower levels than we're at this year and the same is true for 2011," she predicted.

Sutton advised investors not to view the rise on the TSX too positively. Commodities will do well, but the higher dollar "plays havoc," particularly in Ontario where the manufacturers are "suffering dramatically."

She said a higher Canadian dollar would put more pressure on exporting companies here to invest in financial contracts that protect them from sudden changes in exchange rates or become more efficient by moving jobs offshore to countries where wages are lower.

The falling U.S. dollar has led in the last few months to a resurgence in what's called the carry trade.Traders sell U.S. dollars because American interest rates are low and buy the currencies of countries with high rates in an attempt to make money on the difference in yields.

That inflow of money into the strong currency economies, she said, in turn risks creating a buying frenzy in financial and housing markets similar to that which led to the downturn in the U.S. economy.

Sutton said the risks are "extremely high" that could lay "the groundwork for the next crisis a few years out."