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Canadian Dollar Heading Back To Parity

The Canadian dollar is back within a cent of parity with its U.S. counterpart after seeing some choppy activity in recent weeks. The currency is expected to hold near parity, and likely move above the level, through 2011, according to an analyst.

In the third quarter of 2010 the Canadian dollar was under-performing other international currencies due to concerns about the U.S. economy, but the currency has strengthened “quite handsomely” heading into the end of the year, said Matthew Strauss, senior currency strategist with RBC Capital Markets in Toronto.

“Going forward, we believe the Canadian dollar will continue to hold its own against the U.S., even if the U.S. continues to strengthen,” said Strauss. He said RBC was forecasting the Canadian dollar would retest parity and likely move a little above its U.S. counterpart. Strauss said the Canadian dollar would trade around parity for most of 2011, “with a strengthening bias, i.e., trading more above parity than below.”

Strauss said Canada’s relatively healthy banking sector and solid economy would keep the currency well supported. In addition, expectations for the Bank of Canada to resume interest rate hikes in the middle of 2011 would “be well in advance of the U.S. even thinking of hiking rates.”

From a broader perspective, Strauss said the U.S. dollar was also expected to be firm through 2011 which would help both currencies outperform in the international markets.

“As it stands, the Canadian dollar is our preferred currency for 2011, together with the U.S. dollar, amongst the so-called G-10 currencies.”

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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