Monday, October 15, 2007

Canada's dollar rises through parity

Canada's dollar rises through parity

Firm commodity prices combined with a sharp narrowing in the spread between short-term Canada-U.S. interest rates supported the Canadian dollar's rise through the third quarter.

In fact, the loonie traded through parity in September for the first time in more than 30 years in the wake of the Fed's aggressive 50 basis-point cut in Fed funds on September 18.

An expected further cut in Fed funds in the fourth quarter of 2007 will sustain the loonie above parity at an average of US$1.03/C$. However, as financial markets become persuaded that no further Fed easing is likely in 2008 and that its next move will be to raise Fed funds, the Canadian dollar will start to reverse these gains. We forecast that the currency will end 2008 at US$0.94/C$, which would represent a 9.2% depreciation compared to year-ago levels. Article from RBC Finance

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