Analyst says loonie to stay below par in short term

Recent softness in the Canadian dollar is expected to remain until the new year, according to a currency analyst with RBC Capital Markets.

The loonie has slipped since the U.S. presidential election on Nov. 6, largely because fears Washington will go over the so-called “fiscal cliff,” said analyst George Davis.

The fiscal cliff refers to the expiration of Bush-era tax reductions coupled with steep spending cuts that will be automatically triggered if Congress and president can’t reach a budget compromise. Many expect that would send both the U.S. and Canada back into recession.

“There are still a lot of concerns in terms of how the fiscal cliff is going to be dealt with in the U.S., and we’re also starting to see concerns flare up in terms of the situation in Greece,” Davis said.

In the short term, the Canadian dollar could drop to US98.5 cents, but the loonie should rise above par in the longer term, he said. However, that will require action on both the U.S. budget crisis and the euro-zone situation, he added.

“As we move into next year, I think we will eventually see things stabilize once again and at that point, we’ll probably see an environment that’s more conducive to the Canadian dollar strengthening,” he said.

That could push the loonie two or three cents above par, said Davis.

About the author

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Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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