Outlook for the Loonie ~ Good News For Canadians Considering Maui

Loonie seen hovering near par with U.S. dollar

next year

Thu Dec 2, 11:08 AM on www.yahoo.ca

TORONTO (Reuters) – The Canadian dollar is expected to be fairly rangebound and remain close to current levels around parity with the U.S. dollar over the next 12 months, according to a Reuters poll.

The currency is expected to stand at a one-for-one footing three and six months from now, according to the median forecasts of 44 strategists in a monthly survey released on Thursday.

But it will sit slightly below parity in the near term, with the median forecast for C$1.010 to the U.S. dollar, or 99.01 U.S. cents, in one month’s time. All of the average targets in the current poll were largely similar to those from a month earlier.

By midmorning on Thursday, however, the Canadian currency seemed poised to test parity, rising to C$1.0053 to the U.S. dollar, or 99.47 U.S. cents, its firmest level in nearly three weeks, as appetite for risk was stoked by rallying equity markets.

“The loonie is expected to remain mostly close to parity for the time being, reflecting both the renewed swings in risk aversion and the renewed strength of the greenback,” said Roberto Mialich, a currency strategist at UniCredit MIB.

The Canadian dollar last toyed with parity for a five-day run in early November, but lacked conviction as global markets were chilled by increased concerns over Irish debt levels and the potential for a Chinese rate hike.

About 61 percent of the respondents saw parity sometime over the next 12 months.

Forecasters remain divided about the timing of future interest rate increases by the Bank of Canada, which could serve to keep the Canadian dollar hemmed into a range.

The Bank of Canada is unanimously expected to keep interest rates on hold next week, but the uneven economic recovery has primary dealers and global forecasters split on when the bank will resume increases in 2011. The bank raised its key overnight rate three times in 2010, to 1 percent.

“It seems to us that speculation of rate increases early next year is very premature. So we think there is a bit of chance that the bank holds off until July and starts tightening from July onwards,” said Shaun Osborne, chief currency strategist at TD Securities.

“From that point on, we can expect perhaps a little bit more obvious Canadian dollar outperformance.”

With the global economy expected to improve, the appetite for commodities will also be a key factor in supporting the Canadian dollar. The currency often tracks movements in resource prices as Canada is a major producer of oil and metals.

“Resilient energy and non-energy commodity prices, backed by rising inflation risks, provide a positive backdrop for the Canadian dollar to outperform the U.S. dollar,” said Alexandre Dolci of Societe Generale.