Currency

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