The article discusses the recent surge in the value of the Canadian dollar, also known as the loonie, reaching a 6-year high and exceeding 83 cents against the US dollar. The increase is attributed to several factors, including:
- Strong commodities cycle: The price of copper has risen significantly, contributing to the growth of the Canadian dollar.
- Global reflation trade: A global economic recovery has led to increased demand for risk assets, including currencies like the Canadian dollar.
- Weak US dollar: The value of the US dollar has declined due to various factors, making it easier for other currencies to appreciate against it.
However, experts warn that a continued rise in the loonie could have negative consequences for Canada’s economy, particularly for exporters who rely on international sales. Bank of Canada Governor Tiff Macklem hinted that the bank may take action if needed to prevent an overvaluation of the Canadian dollar.
Experts predict a potential correction in the commodities cycle and the global reflation trade, which could lead to a decline in the value of the Canadian dollar. Mark McCormick from TD Securities forecasts a USD/ CAD exchange rate of $1.20 to $1.25 next year, while Schamotta expects a weaker loonie by autumn.
The article concludes that the recent surge in the loonie is not just an oil story but rather a complex interplay of global economic factors.
