Loonie at Five Month High

The Canadian hit a five month high as investors bet that Canada’s recovery will experience strong recovery from the global recession. Oil, one of Canada’s chief exports traded above $81 dollars a barrel for the sixth straight day and a Canadian government report is expected to show that Canada added 15,500 jobs in February. Eric Lascelles of Toronto-Dominion Bank stated, “The Canadian dollar has seen a monumental run in the last several weeks. For once the motion is because of fundamental factors in the economy that has prompted the Canada-U.S. rates spread to look more attractive, with people piling on that trade.” The Canadian dollar traded at 97.54 U.S. cents and some currency analysts say that the ‘loonie’ could achieve parity with the US dollar if the Bank of Canada raises interest rates. The Canadian dollar tends to rise and fall with stocks and commodities. Speaking about possible parity with the greenback Avery Shenfeld of CIBC in Toronto said, “We expect the Canadian dollar to hold firm even in this period of U.S. dollar strength, thanks to strong domestic performance in the first half. Enhanced expectations of a Bank of Canada interest rate increase, coupled with a lower probability of a Fed hike come the second half of the year, could lift the loonie past parity.”

Better Than Expected Canadian Data

The Canadian dollar gained a full 2.5% vs. the US dollar since the beginning of March and the Bank of Canada said on March 2nd that inflation and economic output are much better than expected. A Canadian jobs report due Friday may push the loonie even higher but some analysts are skeptical. Stewart Hall of HSBC Holdings Plc stated, “The push to parity is going to be harder than many may suspect in the absence of a significant pick up, well beyond the market median, for Friday’s Canadian jobs report. In the back of the market’s mind is the idea if the currency runs amok, it plays havoc with the overnight rates story and market sentiment that is looking for the Bank of Canada to come off the sidelines in the second half of this year.”

Commodity Linked Currencies Higher on Chinese Data

Chinese export data pushed commodity linked currencies higher. The Aussie dollar gained 0.6% vs. the US dollar and traded at0.9186. Australia is one of China’s chief suppliers of raw materials. The Kiwi dollar gained rose to a five week high against the greenback gaining 0.9% trading at 0.7087. In a note to investors Commerzbank analysts stated, “They (Australian and New Zealand dollars) are benefiting from good Chinese data which suggest that the economy there is expanding strongly.”