Loonie Above Parity

Since January, Canada’s dollar—the loonie, named for the waterfowl of the Canadian $1 coin—has risen and surpassed parity with the U.S. Dollar, due to rapid economic growth and inflation which has spurred interest-rate increases across the country.

For the first time since July 2008 as of April 6, the loonie is worth more than the American dollar, all thanks to Canada’s quicker-than-expected economic growth and the gains the currency has made since the central bank dropped its pledge to hold a 0.25 percent target rate for overnight loans between banks. Oil, gold and base metal prices rose, which added yet more support to Canada’s commodity-linked currency.

“Dropping the conditional pledge is a very strong pointer to a rate hike coming as soon as June,” said Shaun Osborne, chief currency strategist in Toronto at Toronto-Dominion Bank, Canada’s second-largest lender. “It makes you wonder why they didn’t go today. This is a very strong statement on the near- term outlook for the Canadian economy.”

Although near-term growth is strong, the high Canadian dollar combined with poor productivity and a relatively slack U.S. Economy will act as drags on Canada’s economic performance, according to the central bank, which foresees inflation to be above 2 percent this year.