The Canadian dollar has seen a nice rally since about 2002, and hit parity with the U.S. dollar in April of this year. I’m a long-term bull on the Canadian dollar, but I believe that once the dust settles from the Bank of Canada’s decision to increase its key lending rate, the Canada dollar could face a short-term correction. I believe it’s overvalued right now. The Bank of Canada has increased its key short-term lending rate three times this year. On September 8, the rate was increased to one percent. The BOC stated the global recovery was “proceeding” but “uneven.” Read the full statement . The Canadian dollar jumped on the news, and the December futures contract climbed above 0.96300 in early trade.
Despite increasing rates, however, the Canadian dollar has not skyrocketed to parity with the U.S. dollar, or beyond. (It had seen parity in April 2010, but hasn’t retested the level since.) Another rate increase looks doubtful right now. The BOC said any further monetary tightening “would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.” (more)
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