Canadian dollar likely to trump US greenback

OTTAWA (AFP) – The Canadian dollar, or loonie as it is affectionately called here, is likely to soar above parity with the US greenback this year, experts at a Canadian bank said Wednesday.

Canadian Imperial Bank of Canada (CIBC) chief economist Avery Shenfeld said the Canadian dollar had already gained several cents in recent weeks as the market firms up expectations of an interest rate hike in July.

If as expected, the central bank "is out in front of the US Federal Reserve by a couple of quarters" in raising interest rates, the Canadian dollar could reach 1.02 dollars versus the US dollar by September, before dipping back to 0.97 dollars by year end," Shenfeld said.

The Bank of Canada has maintained its key lending rate at a historic low of 0.25 percent since April 2009 to help bolster a fragile economic recovery, but is widely expected to review its position mid-year.

CIBC said other factors were also aligning to push up the value of Canada's currency such as increased demand for oil, minerals and fertilizers; resurgent capital markets; and global debt fears.

"If the capital markets finally get an appetite for M&A (mergers and acquisitions) then Canada could be one of the first places to see the benefit of foreign inflows," said CIBC analyst Zafar Bhatti.

Or "if the investing world starts looking for a place to park capital in the wake of deteriorating sovereign credits then Canada would look very attractive," Bhatti said in a report.

Since the beginning of the year, the Canadian dollar has appreciated 2.5 percent against the US dollar and more than seven percent against the euro.

The loonie last achieved parity with the US greenback in 2008, and previously hit a record 1.10 dollars in 2007.

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