One major currency that has attracted some steady interest this year has been the loonie. Indeed, for the year to date, the Canadian dollar is the top performer amongst the majors after the pound.
Over the past three months the CAD has consistently traded under parity; this morning, it almost touched 0.98, a seven-month low.
There are numerous explanations for the CAD’s outperformance. In the first instance, the currency has become a favourite of the sovereign wealth funds at a time when their faith in the single currency has been severely dented and they are keen to diversify out of the dollar. Likewise, European money market funds have been raising their allocations of the Canadian currency. Secondly, the loonie has benefitted from its status as a petro-currency. And finally, the economy is the second-strongest in the G7, which at some point may necessitate higher rates as BoC Governor Mark Carney made clear last night. Indeed, Carney expressed some concern yesterday that the strong currency might represent a headwind for the economy in the future. He is also concerned by the high level of household debt and the continuing strength of property prices in some areas.
For now, there are no signs of loonie love fading.
Michael Derks, Chief Strategist