After surging above parity late in 2010, the Canadian dollar has been trading in a fairly narrow range during the first 40 days of this year. However, Scotia McLeod’s senior economist says the loonie still has a bullish future.
Andrew Pyle is forecasting the dollar will hit US$1.05 by the middle of the year.
“We still have room to get up to US$1.05 but it’s a different approach from the last time we reached that point,” said Pyle. “Much less volatile and much more grounded on fundamentals.
“The move in 2007 was more speculative against the U.S. dollar, more speculative on commodities. This gives the dollar a better basis for sustainable moves higher, or at least the ability to hold levels around parity.”
Although he expects to see the Canadian dollar worth more down the road, Pyle predicts there will be some bumps along the way.
“We seem to be having trouble getting past $1.02,” he said. “That may be a near-term technical barrier for the currency.
“It looks as though $1.02 may be the double top for the currency. The fundamentals support a move higher, it might just take a bit longer than folks had predicted.”
The Feb. 8 announcement from China to increase interest rates by 25 basis points in an effort to ease inflation had a cooling effect on commodities, but Pyle said no significant losses would be felt here.
“Even when we have seen pullbacks in commodities such as oil and gold, we have still seen decent resistance from Canada’s currency,” he said.
Pyle said if the U.S. dollar was ever to take a hit, Canada’s currency would rise in short order.
“If the U.S. dollar were to go the other way (weaker), that in itself could be enough for us to slip up to US$1.05 in very little time at all,” he said.