The following is excerpted from the 2 November 2010 edition of “ca.reuters.com”.
Canada’s dollar hit its highest in more than two weeks against the U.S. currency on Tuesday, putting its sights on parity again, helped by an unexpected interest rate rise in Australia.
But the gains paled in comparison to its commodity cousin, the Australian dollar, which shot above parity to its highest against the U.S. currency since 1983 after a surprise Australian interest rate hike.
At 8:30 a.m. (1230 GMT), the Canadian dollar was at its highest since October 15 at C$1.0081 to the U.S. dollar, or 99.20 U.S. cents, up from C$1.0161 to the U.S. dollar, or 98.42 U.S. cents, at Monday’s close.
Canada’s currency pushed above parity last month but had no staying power, partly because the Bank of Canada’s last policy statement was more dovish than some had expected.
“We’re just a penny shy of parity once again. What’s going to push us over? There’s no shortage of event risks and developments over the next few days that could,” said Eric Lascelles, chief Canada macro strategist, at TD Securities.
This week’s events pose strong potential for market swings as investors will absorb policy decisions from a host of central banks, particularly the U.S. Federal Reserve, which is expected to launch another round of quantitative easing through bond purchases. U.S. midterm elections on Tuesday and U.S. and Canadian monthly jobs data, due Friday, are also key.
In addition, investors will also be keeping an eye on developments in Anglo-Australian miner BHP Billiton’s $39 billion hostile bid to buy Potash Corp., a fertilizer giant and one of Canada’s biggest companies. A successful deal could nudge the Canadian dollar higher as many Canadian shareholders convert their U.S. dollar payouts back to the domestic currency.
Lascelles said parity was a “magical” figure but that TD was not expecting it right away and one key factor may be the details of the Fed’s quantitative easing program.
Markets are generally priced for the U.S. central bank to commit to buying at least $500 billion in Treasury debt over the coming months in a new round of stimulus aimed at shoring up the U.S. economy.
“We’re formally forecasting at least as an opening position more like $300 billion over the first few months. I’m inclined to think that the market could be a little bit disappointed tomorrow with the consequence that the U.S. dollar strengthens and the Canadian dollar doesn’t quite pull off parity. It should be a whippy market,” said Lascelles.
Canadian government bonds were slightly lower, taking a wait-and-see approach similar to U.S. Treasuries as the two-day Fed meeting was to start on Tuesday.
The two-year bond fell 4 Canadian cents to yield 1.431 percent, while the 10-year bond shed 10 Canadian cents to yield 2.851 percent.