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Thanato

Loonie to surpase US Dollar by end of 2007

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Thanato

Canadian dollar parity with US dollar looms

It might have been unthinkable only a few years ago, but parity between the U.S. and Canadian dollars some day is not that much of a long shot any more.

Even though the Canadian dollar has appreciated by almost 50 percent against the greenback over the last three years, analysts say buoyant global commodity prices, Canada's relatively favorable economic fundamentals and prospects of rising interest rates suggest there's room for even more upside.

Further gains of only around 15 percent from current levels would put the U.S. dollar at C$1.00 for the first time ever.

"We will get there," said David Durrant, chief strategist at Julius Baer Investment Management, LLC, in New York.

"We would think that's in the cards. Will it be in six, 12, 18 or 24 months? The timeframe's all that's missing ... (but) that's where we're going," he said.

The U.S. dollar fell to a 14-year low of C$1.1367 <CAD=> at the end of January. On Thursday, it was trading around C$1.1450, while the Canadian dollar rose to its highest level against sterling <GBPCAD=> in 12 years.

Durrant estimates that in real terms, on a purchasing power parity basis, the U.S. dollar was probably worth approximately C$1.00 around the time its nominal exchange rate traded at the record low of C$1.12 in December 1991.

Durrant reckons Canada's terms of trade, with oil, metals and commodity prices still strong -- this week's sell-off in these asset classes notwithstanding -- will continue to provide a pillar of support for the "loonie."

If global growth remains buoyant, demand for commodities -- and therefore the loonie -- should also remain firm.

"If you're bullish on the global economy over the next couple of years, you have to think the CAD is going to be a major beneficiary," said Peter Frank, senior currency strategist at ABN Amro in Chicago.

RATE SPREADS TO NARROW?

Frank predicts parity between the U.S. and Canadian currencies by the fourth quarter of next year and targets the greenback at C$0.95 by the end of 2007.

"I've had that forecast for a long time and I still think it's reasonable. It's probably going to happen," Frank said.

Traders have been betting consistently on further Canadian dollar strength for several months now. But that positioning has not limited the currency's gains so far, and in any case, it is not thought to be at levels extreme enough to prompt an unwinding.

Canada is a major commodities and energy exporter. The high revenues it has received recently have helped swell the country's trade and current account surpluses.

The latest available data show Canada's merchandise trade surplus in the first 11 months of last year was C$59.33 billion. Figures for December, due on Friday, expected to show a surplus of C$6.8 billion.

Canada's budget surplus in the first half of fiscal year 2006, from April to October, was C$9.45 billion, although C$5.3 billion of proposed tax cuts for 2005/06 have yet to come into effect.

Canada's currency does not need to attract large amounts of foreign capital to fund "twin" trade and budget shortfalls and prevent it from depreciating, like the dollar does.

Indeed, Canada's broader economic health, reflected in the country's low and falling unemployment, suggests there is scope for the Bank of Canada to continue raising interest rates.

"The narrowing of the interest rate differential will deflect short-term money that would otherwise flow out of Canada to the U.S.," said Michael Woolfolk, senior currency strategist at The Bank of New York.

Benchmark rates currently stand at 3.5 percent, a full percentage point below those in the United States. The Federal Reserve is expected to stop raising rates around the middle of the year, but most analysts expect the BOC to continue through the end of the year.

This anticipated narrowing of rates and yield spreads -- 2-year spreads are currently around 65 basis points compared with 95 basis points six months ago -- may lend further support to the Canadian currency in the coming quarters.

Woolfolk's forecast is for the greenback to fall to C$1.05 by the middle of 2007. But he wouldn't be surprised if parity is reached before the year's out.

"This is not over yet and Canadian corporates need to start adjusting to that reality," Woolfolk said.

Source

~Thanato

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Goingcrazy

Yeah and the dollar is taking a beating from the Euro as well

Lets all take a moment to thank the incompetent administration of President W. Dumba**

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__Kratos__

Just in case anybody cares, the Aussie dollar is up as well.

Yeah, I think we can blame the Bush admin a little bit for this screw up...and a good bit of Clinton for the trade deal with China. <_<

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Thanato

Hey, its not all your guys fault :P Our economy is booming :P

~Thanato

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Scorpius

Cheers for the Canadian Dollar. :tu: I can't wait till the day the CAD suprasses the USD.

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newbloodmoon

It didn't help the US Dollar either when FDR had taken the dollar off the gold standard to help with his social programs then once again when Richard Nixon had finalized the completetion of removing it. With the up and down of the stock market and the "We can just print more" attitude it isn't any wonder that it's going down.

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StalingradK

I live near the Canadian border, maybe I'll home hop to each country accoridng to the economy :D

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