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Canadian Dollar Moves Towards U. S. Parity

The Canadian dollar has been slowly strengthening towards parity with the U. S. currency and could soon top it.

The Canadian dollar has been finding regular support from global investors who see Canada’s economy as one of the stronger ones in the Group of Seven nations, George Davis, chief technical currency analyst for RBC Capital Markets in Toronto, said.

“The risk appetite for the Canadian dollar in turn has improved as a result,” Davis said. The move towards parity with the U. S. currency and its likely move above, also is being tied to the fiscal responsibility the Canadian government has shown.

Davis said the Canadian government is again pushing to remove the country from a deficit positions and as long as it continues on that path, investors will continue to look to the Canadian dollar.

Confidence in Canada’s commercial banking system has also seen other countries start to shore up their reserves of the Canadian dollar, aiding the currency’s strengthening pattern, Davis said.

The Canadian currency was seen hovering in the US98-to 99-cents range in the near term, but was expected to push to the US$1.02 area by June, Davis projected.

“If global crude oil values continue to stay above the US$80-a-barrel level, the Canadian dollar may also be able to hold above parity for a bit longer than earlier projected,” he said.

During the second half of 2010, the analyst expected the Canadian unit to gradually give up some of its strength and move back towards parity with the U. S. dollar.

Part of the pull-back in the value of the Canadian dollar will be linked to profit-taking. Any altering of the economic growth profile was also expected to have some bear ish implications for the value of the Canadian dollar, Davis said.

Developments in China will also be closely monitored and could be a factor that still throws a wrench into the economic recovery scenario. Davis said the Chinese government has been making a serious effort to slow its economic growth pace, and those efforts will continue to be a focal point of the marketplace.

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