Tags: Canadian | Dollar | U.S. | parity

Canadian Dollar Likely to Soar Above U.S. Currency

Tuesday, 16 Mar 2010 03:58 PM

By Dan Weil

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The Canadian dollar will probably soar above parity with the U.S. dollar for the first time in a year, according to Canadian Imperial Bank of Canada (CIBC).

The loonie, as Canada’s currency is affectionately called, reportedly will benefit from several factors, say experts at the country’s fifth largest bank.

Those factors include rising interest rates; strong demand for Canadian commodities such as oil, minerals and fertilizers; reviving capital markets in Canada: and sovereign debt woes elsewhere, according to AFP news service.

The Canadian dollar already has gained a few U.S. cents in recent weeks, as investors expect The Bank of Canada to raise rates ahead of the Federal Reserve, probably by mid-year.

The Canadian dollar currently trades around 98.60 U.S. cents.

If the Bank of Canada indeed beats the Fed to the punch in raising rates, the loonie could reach US$1.02 by September before falling back to 97 U.S. cents by year-end, CIBC chief economist Avery Shenfeld told AFP.

In addition, "If the capital markets finally get an appetite for M&A (mergers and acquisitions), then Canada could be one of the first places to see the benefit of foreign inflows," CIBC analyst Zafar Bhatti wrote in a report.

A strong Canadian jobs report for February led others to forecast Canadian dollar strength too.

“It certainly dovetails with the idea that the Canadian dollar goes to parity,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, told Bloomberg.

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