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Canadian Dollar - The Loonie is Soaring, thoughts

As the Canadian Dollar is flirting with 0.95 cents US, make people are saying that it will reach parity with the greenback this year. We are definitely becoming a resource and energy currency. However, I still think we are quite a ways from parity of the US dollar. Our economy won't be able to handle it, especially the manufacturing and tourism sectors. The economies natural checks and balances should start to kick in after as we get closer and closer. I can foresee the central bank raising rates, especially with the inflation data we are seeing. What do you think?

TORONTO, June 5 (Reuters) - The Canadian dollar hovered
near its 30-year high versus the U.S. greenback on Tuesday as
commodity prices offered support ahead of domestic jobs data
later this week that could shake the currency.

Domestic bond prices, weighed down recently by a slew of
upbeat economic reports that have firmed expectations for
interest rate hikes, were down again after a rare gain on

At 9:10 a.m. (1310 GMT), the Canadian unit was at C$1.0585
to the U.S. dollar, or 94.47 U.S. cents, compared with
C$1.0584, or 94.48 U.S. cents, at Monday's close.

With no major domestic data to influence traders, the
markets seemed content to let the Canadian dollar ride recent
momentum that has seen it hurtling toward parity with the U.S.

But the currency's mostly uninterrupted rise since
mid-March could come to a screeching halt later this week in
the wake of the Canadian May employment data.

"It's going to take something to trigger an inevitable
correction and I think that trigger could be the labor numbers
on Friday," said Carlos Leitao, chief economist at Laurentian
Bank of Canada in Montreal.

"But right now it's just sentiment and momentum. There
really isn't anything other than that at this point and I don't
see any reason for this love affair to stop right now."

The employment data on Friday, when May housing starts and
April merchandise trade reports are also released, is expected
to show the economy added 19,000 jobs, according to a Reuters

Canadian employment growth had been on a roll until April
figures showed the economy shed jobs for the first time since
last August. Leitao said that, while two straight disappointing
reports would not cause much concern for the economy, it could
hurt the Canadian currency.

"After a string of strong reports it doesn't mean all that
much," said Leitao. "But the market will probably not react
well and that could be the trigger for a (Canadian) dollar

The Canadian dollar is up about 11 percent since it touched
a 15-month low in February given a mix of robust economic data,
merger-related activity, higher commodity prices, and a weaker
U.S. dollar.

The gains heated up last week as the Bank of Canada said it
would need to tighten monetary policy in the near-term, while a
report on first quarter economic growth came in above

Earlier, U.S. Federal Reserve chairman Ben Bernanke said
the U.S. economy is set to grow at a sluggish pace in the
coming months but there are risks that elevated levels of
inflation excluding food and energy may not recede.


Bond prices were down and unable to build on gains recorded
on Monday, as the market factors in a rate hike as early as

U.S. treasuries, also under pressure, have done little to
offer solace to the domestic bond market as an improving U.S.
economic outlook has quieted forecasts of U.S. rate cuts.

"It's almost like a mirror image of the Canadian dollar,"
said Leitao. "But a correction will likely occur ... and that
trigger could very well be the labor numbers."

With no key data on the Canadian economic calendar, bond
dealers will likely key off U.S. non-manufacturing Institute of
Supply Management data due at 10 a.m.

The two-year bond was down 3 Canadian cents at C$98.41 to
yield 4.598 percent, while the 10-year bond dropped 13 Canadian
cents to C$96.38 to yield 4.494 percent.

The yield spread between the two-year and 10-year bond was
-9.9 11.5 basis points, compared with -11.5 basis points at the
previous close.

The 30-year bond declined 20 Canadian cents to C$121.40 to
yield 4.365 percent. In the United States, the 30-year treasury
yielded 5.034 percent.

The three-month when-issued T-bill yielded 4.33 percent,
unchanged from the previous close.
feels like you are right.. same with the swedish crowns.. raised in value over the last couple of years.. and rate went up.. becomming more and more expensive to live in sweden and for a young person like myself who graduated last year.. it's very hard to find a place to live where u can afford the rent and don't have to take a high loan.. was alot cheaper (yes comparing to our money value) for a couple of years ago.. when the swedish crown was weaker
I checked some of the USD/CAD technicals and, indeed, it seems as if it's heading to its 30-year high against the dollar. The monthly chart has shown, however, some divergence with the 5-5-5 stochastics curve but not the 250-5-5 stochastic or the MACD yet. All of this may point to a possible correction in the near term.
This topic is in more than one forum. I mentioned in another forum that I live in the Detroit, Michigan, area. We have always had many Canadian shoppers, especially after the VAT (value-added tax). VAT and Ontario sales tax add 15% to the cost of items. As the Canadian dollar rises against the US dollar, our goods become more attractive to Canadians. Michigan is still in a depression, so extra retail sales to Canadians are welcome.

P.S. Canadians are always welcome here.
W have yet to seen any negative impact of this situation of our economy. Right now, only experts are saying that there might be problems, while reality shows relative stability of costs, exportations and else.

Our fear from the raise comes from our overdependance towards the United States. It is great time that we come to a greater variety of our commercial partners, which would lower a lot the potential impacts of a currency change.
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