Loonie hits 28 year high
CTV
The Canadian dollar climbed to a 28-year high Monday, extending last week's advance amid a relentless rise in commodity prices, continued interest from abroad and weak trading volume as dealing rooms across the globe closed to celebrate the May 1 holiday.
The loonie's recent gains has some traders and economists forecasting further highs for the Canadian currency, and steeper losses for the U.S. dollar. A growing number of analysts are calling for the two currencies to reach parity.
"The pieces are in place for the Canadian dollar to continue to strengthen and the U.S. dollar to continue to lose ground," said Andrew Busch, global currency strategist at BMO Nesbitt Burns. "I believe that we are in the start of a gradual decline of the U.S. dollar that will take us somewhere in the territory of parity — we are only 10 per cent away from that now."
The loonie soared to 89.97 cents (U.S) on Monday, its highest since 90.04 cents on February 13, 1978. The dollar ended trading at 89.83 cents, up 0.38 of a cent from Friday's close.
The Canadian dollar, which closed last week with a 1.8-per-cent ascent, touched a high of 89.56 cents on Friday, its highest since May 26, 1978. The currency surged 4.8 per cent in April, its largest monthly gain in at least 25 years.
The U.S. dollar, meanwhile, fell against most other global currencies Monday, hitting a one-year low against the euro and seven-month low against the yen.
Mr. Busch said that the loonie's recent gains were sparked by meetings between the International Monetary Fund and the Group of Seven industrial powers two weekends ago. The U.S. dollar has been sliding against most other global currencies since the IMF raised the issue of growing imbalances in trade and investment flows between the U.S. and Asian countries.
"This has spread in the minds of currency traders to all of the countries that have global imbalances with the U.S. — and Canada is one of those," he said.
Rising crude and gold prices also helped to boost the Canadian dollar Monday. Crude prices shot back above $72.70 a barrel on the New York Mercantile Exchange as Iran's nuclear standoff with the U.S. and its Western Allies showed no signs of abating. Gold prices also climbed to highs not seen in more than 25 years, hitting $664 an ounce.
Global institutional investors, hedge funds, foreign central banks and investors have all been buying the Canadian dollar on the back of the higher commodity prices.
The loonie is also benefiting from a strong Canadian economy and a favourable interest rate environment.
"Until the Bank of Canada specifically states that they are going to hold off raising rates because of the strength of the Canadian currency, it is going to appreciate," Mr. Busch said.
Traders said the U.S. dollar would likely be weak on Monday because of holidays in Europe and Japan, and massive illegal immigrant protests that were expected to take place in the United States.
"This is 'Golden Week' in Japan and the dealing rooms there are effectively closed, or at least are very poorly manned, removing a goodly portion of the normal buyers of dollars that might otherwise be there, making the dollar's fall all that much more easier," Dennis Gartman wrote in the Gartman Letter. "Also, this is May Day and many of the countries in Europe will be celebrating, leaving some of those desks also under-manned later today."
He advised investors to use any strength in the U.S. dollar as an opportunity to sell the currency.
