Dollar jumps past 64 cents
By RICHARD BLOOM
Globe and Mail Update
The Canadian dollar continued to shine Friday, passing the 64-cent (U.S.) barrier for the first time in months and coming within spitting distance of its pre-Sept. 11 value.
"The Canadian dollar is a proxy, in a way, for how people are looking at the U.S. and the idea being the sooner the U.S. economy recovers, the sooner commodity prices will recover," Ted Carmichael, economist at J.P. Morgan Securities Canada Inc., told globeandmail.com
"The combination of better commodity prices and increased risk appetite on the part of investors is good for smaller currencies like Canada," he said.
One Canadian dollar was worth 64.06 cent by the week's end, up 0.31 of a cent from Thursday's Bank of Canada closing price.
For the week, the dollar rose nearly two-thirds of a cent and is up more than 2.5 per cent from its Nov. 9 low of 62.37 cents. That bottom marked a record low.
The loonie was trading at 64.16 cents on Sept. 11, when a terrorist attack on the United States threw the global markets into dissarray.
Rob Palombi, fixed income analyst with Standard & Poor's MMS, says the main theme this week was the cut in interest rates by the U.S. Federal Reserve, which brought an influx of foreign buyers to North American currencies on the hope that the easing will help spur the faltering Canadian and U.S. economies.
"It's not really been a story of the Canadian dollar improving against the U.S. as much as the North American currencies generally improving against the Yen and Euro," he said.
Mr. Carmichael said that while the Street has been sifting through a mixed bag of economic data lately, there have been more positive surprises surrounding the health of economic conditions in the United States and that has lifted hopes of currencies traders.
On Thursday, retail sales figures in the United States came in worse than analysts had expected but were offset by better than expected jobless claims numbers. Friday, an upbeat report on business inventories was counterbalanced by a less than encouraging snapshot of U.S. industrial production.
"I personally think the Canadian dollar got to very depressed levels and its most likely path was to start to improve and that seems to be what we're seeing," he added, saying he expects the dollar to continue to rise as more evidence that the U.S. and Canadian economies have bottomed is released.
But while 64 cents seems impressive compared with its performance in early November, Mr. Carmichael says he doesn't see it as that momentous.
"If we can move it up above 65 cents and it stills has some momentum, I think that's more of a hurdle," he explained.
"There is a growing sense that the worst may be over for the economy," Doug Porter, an economist at BMO Nesbitt Burns Inc., said earlier this week.
The latest Fed rate cut on Tuesday came as no surprise, but the language of the central bank's statement suggested it left the door open for further reductions, Mr. Porter said.
"They'll do what they have to do for the economy," he said.
The Bank of Canada is also ready to do its share, and is expected to lower interest rates one-quarter of a percentage point on Jan. 15, and will reduce rates by half a percentage point if it's needed, he said.
Going forward, Mr. Carmichael says he expects trading to be light through New Year's as investors take a step back and assess their portfolios.
"Its been a rough year for a lot of people in the markets and they're closing their books down, trying to preserve what gains they have — if they have gains — so risk taking through the end of the year is going to be somewhat limited," he said.
Mr. Palombi echoed that sentiment.
"Investors are pretty much throwing in the towel for the year and looking ahead to next year with a bit more hope in the global economy and that is going to be a positive factor for the Canadian dollar." |
