Amidst the Cyprus woes and growing Eurozone instability, the Canadian dollar has experienced a volatile six weeks. In late-February the loonie dipped to an 8-month low against the greenback, as fears over Cyprus threatened the foundation of the euro. The announcement of the bailout package set the loonie back on track, breaking the 0.9800 line against the US dollar. Ahead of the Easter weekend, the loonie is approaching 0.9850 against its major US competitor, signalling that economics may outweigh investor fears.
The Canadian dollar has performed well against the greenback, trading above parity for the balance of the calendar year. Canada’s relative economic strength, combined with a deepening US recession, has bolstered the loonie following the 2008 financial recession. However, the eruption of sovereign debt crises throughout the Eurozone over the past few years has kept the Canadian dollar in check. The latest round of sovereign debt turmoil emanating from Cyprus considerably weakened the loonie against its major competitor, hitting a low of 0.96820 in early-March trading. In mid-week trading, however, the loonie advanced against most of its major pairs after the country posted its largest CPI gains in over 20 years. Consumer prices rose by 1.2 percent in February, exceeding initial expectations (0.8%). The rapid rise in consumer prices has also fueled speculation that the Bank of Canada will raise interest rates.
In three months of trading, the Canadian dollar has advanced 0.9% against 9 of its major pairs. Ongoing developments in Europe have put downward pressure on the CAD/USD trade, but as investor confidence grows and commodity prices strengthen, the Canadian dollar will likely find support at 1.00. Following the Cyprus bailout deal, the Canadian dollar posted its strongest trade in a month against its US competitor. Combined with less than stellar US job and economic growth data, the CAD/USD trade looks to rebound to parity in the days and weeks ahead. As a commodity currency, the future of the Canadian dollar is intricately tied to broader macroeconomic developments throughout the globe, signalling that politics and market exuberance will likely dictate how far the loonie will fluctuate.
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