Canadian dollar won’t move above parity any time soon

The Canadian dollar has seen significant declines compared to its U.S. counterpart in recent weeks, and isn’t expected to climb back above parity any time soon, according to currency analysts.

The Canadian dollar has continued to move further and further below parity with the U.S. dollar, closing at US98.16 cents on Feb. 21.

Although the focus has been on recent weakness in the Canadian dollar, its downward slide started in late 2012, Shaun Osborne, chief FX strategist with TD Securities in Toronto, said.

“A lot of focus has been on the Canadian dollar’s performance over the past few weeks, but the Canadian dollar’s slide really started late last year,” he said. “And it was only over the Christmas period where we had a bit of consolidation that sort of masked that trend of underperformance.”

Most of the Canadian dollar’s recent decline in value is linked to a change in investor sentiment, as the Bank of Canada switched from a hawkish to a dovish tone in late 2012.

“In a nutshell, the weakness in the Canadian dollar is essentially a reflection of the Bank of Canada’s change of policy message, low for even longer, which is a direct result of some pretty sluggish growth numbers that we have seen for Canada since late last year,” Osborne said. “And low inflation numbers as well.”

Statistics Canada released Canadian inflation and retail sales data Feb. 22, and both were weak, which pushed the Canadian dollar down below the US98 cents level.

Osborne said as long as Canadian economic data continues to be weak, the Canadian dollar should continue to move lower, and he doesn’t expect it to move back above parity any time soon.

The Canadian dollar could move down to the US97 cents level, and maybe even a bit beyond that over the next few weeks, Osborne said.

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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