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.
[H3]Loonie to hit par in 2007: NBF[/H3] [P class=story-attributes]CAROLYN LEITCH, Globe and Mail Update
[!-- Template for displaying photos in RT News stories --] [img height=1 alt="" src="" width=1 border=0]
[!-- photo_template.html ends --] The Canadian dollar could reach parity with the U.S. currency by the fall of 2007, according to Clément Gignac, chief economist and strategist at National Bank Financial Inc.
That's an accelerated schedule from Mr. Gignac's previous forecast, which called for the two currencies to reach equal value by 2010.
Mr. Gignac believes the U.S. current account deficit will be the driver for a realignment of many of the world's currencies. That shift will also drive the price of gold past $800 (U.S.) an ounce next year — with a probable test of the record $850 an ounce set in January, 1980, the economist said in a note to clients.
Mr. Gignac said that the United States must attract a foreign capital inflow of almost $2.5-billion a day to finance its current account deficit and support its currency. That deficit reached a record 7.1 per cent of gross domestic product in late 2005.
"This global imbalance is unlikely to correct without a rise of the currencies of countries that have current account surpluses," he said.
The record U.S. current account deficit and the increasing likelihood of foreign reserve diversification by Asian central banks are setting the stage for a new U.S. dollar down-leg and a steeper U.S. bond yield curve, Mr. Gignac said.
Canada, which has both current account and fiscal surpluses, is likely to see the dollar trade at an average value of 90 cents this year, he added. That's stronger than his previous forecast of 86 cents.
As for gold, Mr. Gignac expects bullion to act as a haven during the broad-based decline of the U.S. dollar.
That scenario becomes even more likely if the U.S. Federal Reserve Board begins to cut interest rates again in 2007, he said.
Mr. Gignac, who acknowledged the boldness of his predictions, added that plenty of risks exist: commodity prices could become more volatile in the coming months as pressure mounts on the U.S. dollar. Since some of today's commodity prices have been inflated by speculation, increased choppiness could force some players to scale down their huge positions.
Also, a sharp decline in U.S. home prices could trigger a consumer-led U.S. recession. The Canadian economy would feel a strong U.S. headwind and the loonie would eventually lose momentum as the current trade surplus swung to a huge deficit.
In the short term in Canada, Mr. Gignac cautioned, the dollar could be susceptible to some pullbacks after the advance in April.
The economist added that the Bank of Canada's latest survey reports that Canadian businesses so far seem to be adapting fairly well to appreciation in the loonie. Some companies are outsourcing production or replacing workers with new equipment to remain competitive with the United States and other countries.
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Sportsdude the Economist:
The U.S. economy is a bunch of smoke and mirrors. Bush has run the defecit up so much that it will take 50 years for the country to get back to even. And China is the one keeping the country afloat. If they stop giving the country money, I wouldn't be suprised if by the end of this decade that the Loonie will be stronger then the greenback.
loonie will never rise above the greenback,the fundamentals are not there.
we can however enjoy a strong rise fuelled by booming resource commodities.
high dollar actually hurts us sportsdude as we export more than we import around the world.
Yeah resources that will run out if Canada doesn't put safegards on it. The Forests of B.C. are going to go the way of the cod fish in 50 years if the government doesn't get smart about logging.
Did you hear about the Polar Bear? Its being put on the endangered list. There will be no more wild polar bears in 50 to 100 years.
the polar bear is having problems because of global warming and the ice pack not freezing properly among many other things.
we high have a high replanting rate in bc for timber,one of the highest in the world.it is the pine beetle that is causing problems and may wipe out hundreds of millions of more trees.
With money parity and the necessity for passports, tourism will pretty much go down the drain. This will hurt the economy, and close a lot of businesses that rely on casual day-tripping shoppers from both sides of the border.
kitten wrote:
With money parity and the necessity for passports, tourism will pretty much go down the drain. This will hurt the economy, and close a lot of businesses that rely on casual day-tripping shoppers from both sides of the border.[FONT color=#00407f]Then again, Canadians will be able to venture abroad far more often.[/FONT]
But there again, we'll have to be dealing with those pesky passports or other identification just to pop across the line for a few groceries or a Sunday drive in the country.
Don't worry Kitten. If Hillary gets elected in '08 she'll stop that program because it not only hurts Canada but it hurts America as well. And I've said before and I'll say it again this security card has sealed Pt. Roberts fate into becoming a Canadian town.
I think you are right, Sportsdude. If the people in Point Roberts need anything beyond groceries they need to come to B.C. Clothing, cars, movies, it's either come her and shop in B.C. or drive through to cross into Blaine to reach Bellingham. Even if they use their boats they will have to pass scrutiny by the Coast Guard. Makes you wonder how far Bush and Company will go to disenfranchise their citizens.
kitten wrote:
[span style="font-weight: bold; font-style: italic;"] Makes you wonder how far Bush and Company will go to disenfranchise their citizens.[/span][br style="font-weight: bold; font-style: italic;"]
That doesn't bear thinking about.
Well, Hate to break it to you guys but the loonie has already surpassed the greenback. It was probably at an even keel at about 70 cents, now it is 90 cents. I will be buying my next care from the US and save 8 thousand dollars on a 30 thousand dollar car (exchange rate included). I remember 4 years ago when it was at a buck sixty for a greenback and our purchasing power was about the same....unless the US has endured about 30 percent inflation over the past 4 years Canada has come out on top.
Thanks Bush!!!!
Sorry, meant to say if Canada has endured 30 percent inflation over the past 4 years
Ooooh.... an economist has entered the room! (//forums/richedit/smileys/Other/14.gif)