10:36 AM

Dollar (Canadian) currency

Posted by Saleem Mukati

The Canadian dollar rallied sharply against the US Dollar through recent trade, as the US Federal Reserve's aggressive interest rate cuts left the Canadian currency at a clear advantage against its US namesake. The Canadian Dollar currently enjoys a 1.25 percent yield advantage against the Greenback-a fact that has bolstered demand in the otherwise-downtrodden Loonie. In terms of expectations, however, traders predict that the Canadian currency will lose the vast majority of this yield advantage through 2009.

Combined with a bearish outlook for Canadian exports, negative Bank of Canada rate expectations leave a pessimistic fundamental bias for the Canadian Dollar. Oil prices near multi-year lows have likewise played a part in Loonie weakness, and few envision that major commodity markets will improve substantially through 2009. As the most export-dependent economy in the G10, Canada may be one of the countries most affected by a drop in global consumption. This leaves the Canadian dollar in a precarious position, and outlook remains bearish for the Loonie through the foreseeable futur


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