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Loonie resumes ascent, expected to reach parity on better economic prospects
The Oct 8, 1:41 PM
Julian Beltrame, The Canadian Press
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar appears to be again reaching for parity.
With the greenback falling against most global currencies, the loonie has caught an updraft that has seen it gain about three cents in just over a week, to approach 95 cents US.
And many factors - including an expected positive jobs report from Statistics Canada on Friday - are expected to help keep the loonie rising, possibly to parity by the end of the year.
The consensus is for the agency to report that 5,000 net jobs were created in September. That is a modest number, but marks a major difference from the situation in the U.S. - against whose the currency the loonie is measured.
It would represent the second monthly employment gain in Canada and a clear indication the country is bouncing back from recession, whereas the U.S. still reporting massive three-digit monthly job losses. In fact, the U.S. hasn't had a positive reading in almost two years.
As well, the Australian central bank's decision this week to raise interest rates is leading to speculation that the Bank of Canada will be the next to move, regardless of governor Mark Carney's "conditional commitment" to keep the policy rate at an ultra-low 0.25 per cent until mid-2010.
Carney didn't do anything to dissuade the speculation with his latest speech, in which he devoted three paragraphs to reminding listeners that the commitment was conditional, stressing that the pledge was "an expectation, not a promise."
The loonie is also benefiting from a general mood of optimism about the global economy that is pushing commodity prices and demand higher, particularly for oil.
"The market has a renewed risk appetite, very similar to what we saw through the early part of 2007," when the loonie went beyond parity, said Shane Enright, a currency strategist with CIBC.
Bank of Montreal economist Douglas Porter said his bank's official forecast remains for the loonie to achieve "sustainable parity" by the middle of next year, but it now believes the magic number could occur in the next few months.
He pointed out that currency markets often overshoot fundamentals both on the upside and downside, and that the wind is clearly behind the loonie.
"Once markets focus on a target, they sometimes act like a dog with a bone," he said.
But Porter added that the speculation about the Bank of Canada following Australia into a tightening mode makes little sense, given that the central bank has expressed concern about the dollar's quick appreciation. Higher interest rates will only serve to give the currency an additional boost, he noted.
Loonie resumes ascent, expected to reach parity on better economic prospects
The Oct 8, 1:41 PM
Julian Beltrame, The Canadian Press
By Julian Beltrame, The Canadian Press
OTTAWA - The Canadian dollar appears to be again reaching for parity.
With the greenback falling against most global currencies, the loonie has caught an updraft that has seen it gain about three cents in just over a week, to approach 95 cents US.
And many factors - including an expected positive jobs report from Statistics Canada on Friday - are expected to help keep the loonie rising, possibly to parity by the end of the year.
The consensus is for the agency to report that 5,000 net jobs were created in September. That is a modest number, but marks a major difference from the situation in the U.S. - against whose the currency the loonie is measured.
It would represent the second monthly employment gain in Canada and a clear indication the country is bouncing back from recession, whereas the U.S. still reporting massive three-digit monthly job losses. In fact, the U.S. hasn't had a positive reading in almost two years.
As well, the Australian central bank's decision this week to raise interest rates is leading to speculation that the Bank of Canada will be the next to move, regardless of governor Mark Carney's "conditional commitment" to keep the policy rate at an ultra-low 0.25 per cent until mid-2010.
Carney didn't do anything to dissuade the speculation with his latest speech, in which he devoted three paragraphs to reminding listeners that the commitment was conditional, stressing that the pledge was "an expectation, not a promise."
The loonie is also benefiting from a general mood of optimism about the global economy that is pushing commodity prices and demand higher, particularly for oil.
"The market has a renewed risk appetite, very similar to what we saw through the early part of 2007," when the loonie went beyond parity, said Shane Enright, a currency strategist with CIBC.
Bank of Montreal economist Douglas Porter said his bank's official forecast remains for the loonie to achieve "sustainable parity" by the middle of next year, but it now believes the magic number could occur in the next few months.
He pointed out that currency markets often overshoot fundamentals both on the upside and downside, and that the wind is clearly behind the loonie.
"Once markets focus on a target, they sometimes act like a dog with a bone," he said.
But Porter added that the speculation about the Bank of Canada following Australia into a tightening mode makes little sense, given that the central bank has expressed concern about the dollar's quick appreciation. Higher interest rates will only serve to give the currency an additional boost, he noted.
