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Soaring loonie nearing parity with U.S. buck
Friday, 14 September 2007 - 1:18pm
The loonie’s latest assault on parity began after today’s negative jobs report in the U.S. confirmed the world’s leading economy was being hammered by the continuing subprime mortgage crisis, whereas in Canada continued job growth pointed to the economy’s underlying strength.
But it is not just the weakness of the U.S. currency that is giving the loonie wings, say economists. Canada’s economy—boosted by high world demand for commodities—remains strong, they say, and likely to outperform the U.S. well into next year.
The key to the loonie’s surge is simply that Canada has plenty of what the world needs, said Sal Guatieri, senior economist at the Bank of Montreal.
“All the stars are aligning again in its favour—commodity prices, especially energy, gold is higher, wheat has been on a tear,” he said.
“The fear that recession would crunch commodities hasn’t played out, so for that reason we’ve seen the dollar pick up about five cents since its recent low in mid-August when the credit turmoil hit the markets.”
And the dollar likely will get an additional boost next week when the U.S. Federal Reserve Board is widely seen cutting interest rates in the U.S. by one-quarter a percentage point—making investments north of the border more attractive.
Many analysts now see the dollar reaching parity—even if on nothing more than fumes.
“We’re getting to the stage where parity in itself might become the draw for traders,” said Matthew Strauss, the Royal Bank’s senior foreign exchange strategist.
“As illogical as it might be, once you get to 98, 99 cents, there’s a real risk the market will push it higher just to get to parity.”
One bullish analyst, Dennis Gartman, who writes a business newsletter in the U.S., said it is possible for the Canadian dollar to actually hit as high as $1.05 (U.S.)
A strong dollar is expected to further exacerbate the slump in central Canada’s manufacturing heartland, which is heavily dependent on exports to the U.S.
But it is positive development in the Bank of Canada governor David Dodge’s battle to control inflation. Dodge delayed increasing interest rates last week, and now may be able to ride out the end of his term at the end of January without touching rates.
Strauss said the dollar is carrying much of the load in dampening inflationary pressures, directly by reducing the cost of imported goods and indirectly by depressing manufacturing and consumer spending.
OTTAWA —The Canadian dollar rode hot crude oil prices to a new 30-year high yesterday as expectations mounted that the high-flying loonie soon will reach parity against the flagging U.S. greenback.
The Canadian loonie reached a high of 96.98 cents (U.S.) tops for the currency since Oct. 26, 1976, before settling down to 96.83 cents at the close of markets in Toronto.
But it is not just the weakness of the U.S. currency that is giving the loonie wings, say economists. Canada’s economy—boosted by high world demand for commodities—remains strong, they say, and likely to outperform the U.S. well into next year.
The key to the loonie’s surge is simply that Canada has plenty of what the world needs, said Sal Guatieri, senior economist at the Bank of Montreal.
“All the stars are aligning again in its favour—commodity prices, especially energy, gold is higher, wheat has been on a tear,” he said.
“The fear that recession would crunch commodities hasn’t played out, so for that reason we’ve seen the dollar pick up about five cents since its recent low in mid-August when the credit turmoil hit the markets.”
And the dollar likely will get an additional boost next week when the U.S. Federal Reserve Board is widely seen cutting interest rates in the U.S. by one-quarter a percentage point—making investments north of the border more attractive.
Many analysts now see the dollar reaching parity—even if on nothing more than fumes.
“We’re getting to the stage where parity in itself might become the draw for traders,” said Matthew Strauss, the Royal Bank’s senior foreign exchange strategist.
“As illogical as it might be, once you get to 98, 99 cents, there’s a real risk the market will push it higher just to get to parity.”
One bullish analyst, Dennis Gartman, who writes a business newsletter in the U.S., said it is possible for the Canadian dollar to actually hit as high as $1.05 (U.S.)
A strong dollar is expected to further exacerbate the slump in central Canada’s manufacturing heartland, which is heavily dependent on exports to the U.S.
But it is positive development in the Bank of Canada governor David Dodge’s battle to control inflation. Dodge delayed increasing interest rates last week, and now may be able to ride out the end of his term at the end of January without touching rates.
Strauss said the dollar is carrying much of the load in dampening inflationary pressures, directly by reducing the cost of imported goods and indirectly by depressing manufacturing and consumer spending.