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Canadian Dollar Around 21 Month Low

Posted by WorldWideMarkets . on Jul 5, 2013 3:35:00 AM

The Canadian dollar is also taking a hit as the U.S. dollar rallies. Expectations that the U.S. Federal Reserve will end its period of easy money are bolstering the dollar against the loonie as they have they dollar against everything else. But also hurting the Canadian dollar is the thought that the Bank of Canada is unlikely to tighten immediately. As the largest trading partner to the U.S., given its close physical proximity, vast mineral wealth and educated work force, the Canadian dollar has to benefit as the U.S. economy improves. That should see the loonie continue to outperform other commodity bloc currencies such as the Australian dollar. But investors are also looking to Canada’s monetary policy in its own right. Higher Canadian interest rates have to help the loonie just as higher interest rates from a specific central bank always help a local currency. For now, the loonie is not getting any benefit. But that will change. Canada weathered the U.S. downturn better than was to be expected at the time and they will emerge from the U.S. and global downturn better as well. While the U.S. dollar will outperform over the long run as it has the dominant economy, the loonie should continue to show strength, particularly as the Bank of Canada gets back to a more normal monetary policy.Canadin dollar trading


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