Strength in metals and the energy complex have rocketed the Canadian dollar to extreme levels, exceeding parity with the weakened U.S. dollar in early October.
“All the commodities are really strong, and that is a positive for the Canadian economy,” says Brian Dolan, chief currency strategist for Forex.com. But a setback in oil could slow the advancing Canadian dollar, he says, urging traders to watch metals and energies as they will lead the loonie. In December, he is looking for trade between .95 and parity with the dollar.
“I’ve been wanting to make a trade, but it’s already moved so far, you feel like you’re getting in late in the game,” says Dan O’Neil, executive vice president at OptionsXpress. He says the drivers are slow U.S. growth, declining U.S. interest rates and diversification away from the dollar.
“It’s been a one-way trade for a while,” says Justin Biebel, trader with GFT Forex Ltd., citing Canada’s strong housing, employment and gross domestic product. But that could change. “As these credit issues start impacting global growth, these commodity currencies could be vulnerable,” he says. And because Canada exports 75% of its output to the United States, a downturn in U.S. consumption could hurt the Canadian dollar. He expects a stronger U.S. dollar in December, trading between 0.96 and 1.00 for December, but if oil exceeds $100 per barrel, “all bets are off,” he says.