The Canadian dollar has been on a bit of a roller coaster since May, but analysts see positive signs ahead for the loonie due to relative economic strength in the country.
“The outlook for August is very promising because Canada is one of only three central banks to be raising interest rates at this time,” says Kathy Lien, director of currency research at GFT. “The market’s less concerned about the European sovereign debt crisis now than they were a month ago. [Canada] had blowout employment numbers for the month of June, and much of that growth came from the service sector [which] means that domestic demand is picking up. [Raising interest rates] will make the Canadian dollar a more attractive currency for forex traders.” Lien expects the Canadian dollar to be at 1.02 by mid-August.
Andrew Wilkinson, senior market analyst at Interactive Brokers, expects the Canadian dollar to be at parity with the U.S. dollar by the third quarter of 2010. “Global economic recovery bodes well for growth-sensitive currencies, particularly the Canadian dollar. It’s likely got a string of interest rate rises ahead of it, which enhances the yield, and it’s got a very healthy domestic economy,” he says, adding that by mid-August the Canadian dollar should be at 98.50.