Canadian Dollar Parity

This month the Canadian dollar broke parity with the U.S. dollar, an exciting development. Will these gains continue for the Canadian dollar? I think so, but commodities are key to the equation, as are interest rates.

Looking back, September 20, 2007, was the first time in nearly three decades that the Canadian dollar reached parity with the U.S. dollar. Fueled by strong commodity prices, the Canadian dollar soared to a high of $1.1043 before falling back into a range of 0.97-$1.03. It traded within that range until the global financial crisis began in August 2008. With gigantic firms such as Lehman Brothers and Bear Sterns failing, investors became risk-averse and bought U.S. Treasuries. That helped spark a short and powerful move up in the U.S. dollar, which weakened the Canadian dollar. The Canadian banking system managed to survive the crisis better than most nations' banking systems. And, as we saw commodity prices recover, so did the Canadian dollar, from a bottom of 0.7653 in March 2009.

In the last few months, traders and analysts have been anticipating the Canadian dollar would hit parity. Now that parity has been reached, some are taking their positions off, but many are letting their bets ride with the belief that the Canadian dollar still has a lot of upside potential. (more)