Currency strategists at Scotia Capital weigh in on the Canadian dollar's march to parity with the U.S. dollar (it hit the magic number on Tuesday morning):
"On almost every relative measure Canada is strong. Fundamentals are better than both economists and the central bank anticipated; inflation is firmer, job gains are larger and growth is running well above expectations. Canadian sovereign risk is low, which in the current environment is a key metric for global investors. Sentiment is bullish for both the Canadian dollar and Canadian-based assets, which is driving CAD positive currency flows. Finally, the groundwork has been laid for the Bank of Canada to turn hawkish. The market is now pricing in a 7 per cent chance that the Bank of Canada enters its tightening cycle in April and a 70 per cent chance that the first hike comes in June."
We wonder if this final point on interest rates could be the most important one though. On the day when the Canadian dollar did indeed touch parity with the greenback, commodity prices weren't doing anything exciting. However, Australia's central bank raised its key interest rate again, signalling that commodity-producing countries are in a better position to raise rates than the United States or Europe.
Meanwhile, we compared various commodity prices today with July 21, 2008 (which is the last time the loonie was at parity), and found that today's prices are generally a lot lower.
Crude oil has been rising impressively with increasing confidence in a global economic recovery. But at $87 (U.S.) a barrel, it is still 30 per cent below its 2008 price of $130.
The Reuters/Jefferies CRB index of 19 commodities also looks a lot different today: It is 35 per cent below its 2008 level. And the commodity-heavy S&P/TSX composite index is 11 per cent below its 2008 level.
Gold is a rare exception: It now trades at $1134 an ounce, or 17 per cent above its price in 2008.
David Berman