Friday, May 05, 2006

Canadian dollar trend remains up

Here is an excellent article by by Mike Jubinville of Pro Farmer Canada.

A true milestone was surpassed for the Canadian dollar this week, which rose above the 90 cents US level for the first time since June 1978, up an astounding 45 per cent from the 62 cents US low established in 2002.

Obviously such a move impacts all facets of the Canadian economy and the export-oriented farm commodity sector surely has felt the weight as well. I'm sure we would be looking at $5+/bu wheat with only a 50 per cent retracing of this currency move.

The latest boost to the loonie came after Statistics Canada reported the economy grew by 0.2 per cent in February, matching January's growth. The dollar has also been rising on expectations that the Bank of Canada may continue raising interest rates.

On April 25, the central bank boosted its key overnight rate by a quarter of a percentage point to four per cent, and warned more hikes may be necessary to keep the economy moving and inflation under control. Two days later, in its quarterly monetary policy report, the bank reiterated that message, saying the economy is operating at, or even above, its full capacity.

While the Bank of Canada has been signalling more possible hikes in interest rates, Ben Bernanke, the U.S. Federal Reserve's chairman, signalled a week ago that the Fed may take a short pause after pushing up rates one more time.

I'm asked somewhat regularly what my opinion is regarding the future direction of the Canadian dollar relative to the U.S. greenback. My somewhat generic response is...”I don't think I, nor anyone else, is smart enough to chart an accurate predictive course for the dollar as there are just too many variables involved, both economic and political”.

The combination of global economic strength, domestic strength and rising commodity prices puts the Canadian dollar in a relative sweet spot and solid growth in the Canadian economy has occurred.

But I will say this: for the past two years, I have been saying that the loonie seems destined to work itself towards 90 cents US, and we are there now. What happens next is hard to say. But certainly the debate carries on endlessly.

However as it relates to the currency markets, when a trend becomes established, it tends to move in multi-year cycles. And while I am reluctant to pick and choose targets for the loonie, the chart of the Canadian dollar clearly points to a move which remains inexorably higher. The “Trend is our Friend” trader's axiom is at work here, and until the chart tells us different, the Canadian dollar remains a bull.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit His website find out more about his services.

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