The Canadian dollar closed above 106 cents US on Tuesday after soaring to a three-year high, bolstered by fears of the ongoing U.S. debt crisis.

The loonie hit 106.3 earlier Tuesday, its highest level since November 2007, before settling down to 106.08 cents US later in the afternoon. The loonie closed at 106.07 cents, up 0.34 of a cent from Monday.

The three-and-a-half year high is partly credited to investors anticipating a compromise that would resolve a debt dispute that has ensnarled the U.S. Congress.

U.S. lawmakers have one week left to reach a deal on competing plans to raise the government's $14.3 trillion (USD) debt limit. If Congress doesn't reach an agreement, the world's largest economy could be forced to default on its loans.

With the looming Aug. 2 deadline, there's great trepidation about the greenback throughout world markets.

Traders now perceive the loonie as a safe refuge amid Washington's uncertain financial future, said Finance Minister Jim Flaherty.

"There are investors all around the world, including other countries, looking for safe havens," Flaherty said Tuesday.

Dan Sumner, economist at ATB Financial in Calgary, said Tuesday the economic uncertainty in the United States has offered a boost to a number of currencies, not just the loonie, including the Australian and New Zealand dollars and the Swiss Franc.

"The fact is is right now it's tough to find a currency where you can park $100 million if you're a big corporation or a big investor," Sumner told CTV News Channel. "The Euro's under pressure, the U.S. dollar obviously has woes, the Japanese yen has its own issues, and so alternative currencies like the Aussie dollar, the Canadian dollar, are benefiting from that."

Public appeals by U.S. President Barack Obama and House speaker John Boehner on Monday night didn't offer a resolution to the debt conflict.

While Obama stressed the need for compromise, Boehner reiterated his plan for spending cuts and new tax revenues. The duelling deliveries suggested that the lawmakers aren't close to reaching an agreement.

It isn't unusual that the market is changing in response to bickering in the White House, BNN host Martin Baccardax said.

"I think the market reaction, oddly enough, is a little bit more mature than the adolescence we're seeing in Washington right now," he told CTV News Channel on Tuesday.

To explain the market fluctuation, Baccardax compared investors to nervous passengers experiencing turbulence on an airplane.

"Think of it this way…if you're me you look at the cabin crew," he said suggesting that traders try to sniff out warning signs before panicking about a financially uncertain situation.

Restlessness surrounding the weak U.S. dollar rippled also into the oil market, pushing prices higher.

The September contract on the New York Mercantile exchange was up 39 cents to US$99.59.

Copper and gold prices also rose with the September contract. Copper was up seven cents to US$4.48 a pound, while gold was up $4.60 to US$1,616.80 an ounce.

On Monday, the loonie closed in Toronto at $1.05.73 cents U.S.

Sumner said the loonie will likely get knocked from its high perch over the longer term. Factors such as a productivity gap will eventually drag on the dollar.

Manufacturers hit

There is both an upside and a downside to the soaring loonie. Cross-border shoppers can use the favourable exchange rate as an excuse to take advantage of sales and lower prices at U.S. stores.

Andre Gerard travels to Washington State once a week in search of deals.

"It's only a couple of minutes away. You wait in line for 20 minutes and that's no problem to save a couple hundred dollars," he told CTV News. "Sure, I'll do that any time."

Gerard estimates that shopping south of the border saves him about $150 a week, or $7,000 per year.

Canadian retailers are also finding that their money goes further with their U.S. suppliers, which means lower prices for consumers.

But companies that export goods to the United States find their sales falling as U.S. firms balk at losing funds in the exchange. And the tourism industry has suffered, with the number of American visitors to Canada down by about 10 per cent.

To keep business up, some companies, like Big Bus Tours in Vancouver, are taking U.S. dollars at par.

With a report from CTV's Ottawa Bureau Chief Robert Fife and files from The Canadian Press