Loonie beyond parity with the U.S. dollar by the summer
Wed, March 10, 2010OTTAWA
The Canadian dollar is getting strong, again. Consumers and cross-border shoppers like it. The Canadian economy is getting strong as well so the Canadian dollar has gained several cents in previous weeks. The Canadian dollar hit its highest level in almost five months against the U.S. dollar on Wednesday, helped by firm oil prices, mineral and fertilizer prices. Canadian producers are seeing profits. The forecast says the loonie also stands to gain because the rest of the world considers Canada to have one of the "friendliest" environments to make foreign acquisitions.
Economists said Wednesday that the Canadian dollar would get back to parity with the U.S dollar by this summer due to Canada's interest rate increases. It is expected that the Bank of Canada will finally increase its key lending rate in July and as the U.S Federal Reserve will be holding its rates down, it may cause parity. Other reasons for a strong Canadian dollar and driving to parity are growing demand for Canadian investments and global demand for commodities.
The Canadian dollar is also doing great right now. Those who had to travel to the United States must have felt relief while exchanging their currency. CIBC expects that the loonie could rise to $1.02 US by September before slipping back to 97 cents US by the end of the year. A higher Canadian dollar will help tighten monetary conditions.
CIBS is not the only bank predicting strong times of the loonie. BMO and Scotiabank economists also see parity by the summer.
When the Canadian dollar reaches parity with its U.S. counterpart there will be affects to Canadian exporters. This will be caused by the Canadian Central Bank raising interest rates. On the other hand, if rates remain low, it may damage the economy due to inflation, economists say.
Jana Paskova
Photo: ISIFA
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