The Canadian dollar could stay above parity with its U.S. counterpart for a while and strengthen even further in coming months. But it's resting on a less than sturdy foundation.
A scorecard compiled by the currency research folks at Bank America Merrill Lynch gives the loonie mostly low marks, with an average score of 29 out of a possible 100. That ranked it second last, ahead of only the Japanese yen among the 10 currencies evaluated. The Australian dollar and Norwegian krone led the global pack at 50 and 49, respectively. The U.S. dollar came in sixth.
Each currency was assigned a score based on the governments' current account balance, fiscal position, output gap, nominal interest rates and competitiveness.
As might be expected, Canada scored good grades for fiscal management and the size of its output gap (essentially the difference between actual and potential GDP). But low interest rates, a current account deficit and poor competitiveness score of only 16 undercut the loonie's rating.
The U.S. had by far the highest competitiveness figure, at 97, but finished in the bottom half in every other measure. Excluding this one strong category, the greenback would have limped home dead last in the survey, with an average grade of only 21, compared with 32 for Canada.
Of course, people plowing into U.S. dollars for safety or the loonie as a proxy for the greenback or as a commodities play could care less about the underlying fiscal and economic conditions. But they do illustrate how weak the underpinnings remain and how much more repair work lies ahead.