Canadian Dollar Gaining Strength

The Canadian dollar has been gaining strength over the past month, and a number of analysts believe it will continue its bullish pattern for the final quarter of 2010.

After reaching a six-week low on August 31, the Canadian currency has risen by 5.5 per cent. Andrew Pyle, wealth adviser with Scotia McLeod in Peterborough, Ontario, said the Canadian dollar is on pace to hit parity with its U. S. counterpart.

“As long as the economic conditions stay strong, and we see more improvements in the equity markets (especially crude oil), I think we’re on track to hit parity by the end of the year,” Pyle said.

George Davis, senior currency strategist with RBC Capital Markets in Toronto, said the Canadian unit could parity before the end of October.

“One of the headwinds we are facing is that the U. S. dollar has depreciated against most of the other currencies. It’s extremely oversold right now,” he said.

Davis said if the Canadian dollar is able to remain steady around the US99-cent threshold, parity will be on the way. “If we can register a steady close of above US99 cents, that will generate more interest from people playing the breakout from the long side,” he said.

Pyle said there are a number of factors supporting the Canadian currency right now. “We saw a very strong September and first week of October in the equity markets,” he said. “We’re seeing more signs of growth in the emerging markets, and some snippets of improvements here in North America, which have given a strong commodity backdrop.”

As far as the value of Canada’s currency in 2011 is concerned, Pyle said he expects it to continue its friendly tone. “If we were to see a second wave of selling pressure against the U. S. dollar, that’s where we could see a grossly overvalued loonie, in the US$1 to C$0.9538 to 0.9090 range,” Pyle said.

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