Wednesday, March 10, 2010

Loonie at Par by Summer: Economists

(CBC News)

Interest rate increases will drive the Canadian dollar back up to parity with its U.S. counterpart by this summer, according to a growing chorus of economists.

The latest prediction of parity came Wednesday from CIBC World Markets. Its forecast is based on the expectation that the Bank of Canada will hike its key lending rate in July, at least six months ahead of the first hike by the U.S. Federal Reserve. “Indeed, we’ve already seen the Canadian dollar gain several cents in recent weeks as the market began to firm up expectations” of a July rate hike in Canada, says CIBC chief economist Avery Shenfeld.

The loonie was quoted at 97.48 cents US in early Wednesday trading. It’s gained almost 3.5 cents against the greenback in the last two weeks.

CIBC’s currency outlook sees the loonie rising to $1.02 US by September before slipping back to 97 cents US by the end of the year.

While the Bank of Canada’s early rate hike is one of the main catalysts of the dollar’s rise, it isn’t the only one, CIBC says. The investment bank also lists rising demand for commodities as a reason. It sees the dollar benefiting from rising oil, mineral and fertilizer prices as Canadian producers “repatriate profits.” Read more here.