Loonie hits 3.5-year high despite GDP and election

Fri Apr 29, 2011 4:47pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Canada's dollar hit a 3-1/2 year high against a broadly weaker greenback on Friday, shrugging off uncertainty over Monday's federal election and data that showed Canada's economy shrank in February.

"The fact that the Canadian dollar continues to rally amid a secular decline in the U.S. dollar is of no great surprise," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

"The fact that it was able to withstand a miss on the GDP and ahead of any kind of political uncertainties leading into the election has been more of an indicator of the fundamental support for the currency going forward."

The Canadian dollar fell early in the day as data showed Canada's gross domestic product slipped 0.2 percent in February, reinforcing expectations the central bank will hold interest rates steady until the second half of this year.

The currency finished the week at C$0.9464 to the U.S. dollar, or $1.0566, up from Thursday's North American finish of C$0.9510 to the U.S. dollar. It rose as high as C$0.9450 to the U.S. dollar, or $1.0582, on Friday, its strongest level since November 2007.

Some analysts say it may now target the modern-day high of C$0.9059, or US$1.1039, reached in late 2007.

Strong oil prices and positive U.S. equities lent support, as did second thoughts about the weak February GDP number.

"(The GDP data) doesn't take much away from what's going to be a strong first quarter for the Canadian economy, so any weakness that we see in the Canadian dollar as a result of this number should be relatively short-lived," said David Tulk, chief Canada macro strategist at TD Securities.   Continued...