Canadian dollar within reach of U.S. parity

The Canadian dollar has shown some weakness over the last month, largely as a result of concerns over the European economy. But analysts are still expecting to see the Canadian dollar reach parity with the U.S. greenback by the end of the year.

After reaching parity with the U.S. dollar in May, the Canadian dollar fell in June, trading in the 97- to 98-cent range.

The European financial crisis kept Canadian commodity prices low during June. Declines in oil and gold pressured values lower as investors shied away from trading in commodity-linked currencies like the loonie, said Shaun Osborne, chief FX strategist at TD Securities.

Osborne added that European financial uncertainties forced the Bank of Canada to push back its interest rate increase from some time during 2012 to early 2013, which caused weakness in the dollar as well.

Osborne also said investors are looking for long-term solutions to solve the debt crisis that could strengthen the Canadian dollar.

“There’s no silver bullet here. What investors really want to see is a move toward mutualization of European debt,” said Osborne.

In order for the loonie to rebound, concerns about a global slowdown need to ease, so that commodity prices can begin to climb again, Paul Ferley assistant chief economist at RBC Economies said. More actions like the one recently announced by European Union leaders to provide bailout money and reduce austerity measures in indebted countries could contribute to commodity prices and boost the dollar’s value.

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