Loonie will hit parity with U.S. dollar in few months: analysts

Some are forecasting the Canadian dollar will shoot well above its U.S. counterpart. As many of my BLOG readers will note, I have long argued the case for a 2:1 $CAD to $USD by 2020. As our dollar appreciates, so will our per capita wealth and standard of living.

SAN FRANCISCO (MarketWatch) -- The Canadian dollar is on track to hit parity with the U.S. dollar, a rise that would underscore the strength of Canada's economy compared with that of the United States, as well as the country's vulnerability to swift changes in commodities prices.

Analysts are forecasting that the Canadian dollar will trade on equal footing with the U.S. dollar within the next few months, largely based on investor demand for assets linked to rising commodities prices.

The loonie, the nickname for the gold-colored coin that replaced the paper dollar in 1987, is now trading at 94.11 U.S cents. It would have to rise about 6% to trade at one American greenback, or at parity.

"Our forecast is for [the loonie] to hit parity by the end of the first quarter," said David Watt, currency strategist for RBC Capital Markets. "There's a chance it could hit before that."

Such gains would increase the purchasing power of Canadian consumers. But they could curb Canada's export growth and cool inflation, taking pressure off the Bank of Canada to raise rates. Higher rates tend to make a currency more valuable.

"If China is tapping the brakes now, that would certainly upend the bullish views on commodities," Watt commented.

Rising prices of commodities like oil and gold, as well as a weak U.S. dollar, helped drive up the loonie 22% by the end of last year.

Some countries are diversifying their reserves into Canadian dollars. Russia, which has been outspoken about wanting to unload some of its U.S. dollars that it makes exporting oil and natural gas, said last week that it was buying loonies.



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