Business | Economy
Canadian economy fares better than most
The Canadian dollar could check out of a dismal year on an upswing and even get off to a strong start in 2009, supported by prospects for a domestic economy that appears stronger than its peers.
- Reuters
- Published: 22:40 December 20, 2008
Toronto: The Canadian dollar could check out of a dismal year on an upswing and even get off to a strong start in 2009, supported by prospects for a domestic economy that appears stronger than its peers.
While Canada has joined many European countries, as well as Australia and New Zealand, in slashing interest rates to fend off the deepest recession in decades, its economy is considered by many to be in better shape than most.
The Canadian currency may also find support in the return of relative calm to global equity markets as investors grow less risk averse, removing the US dollar's main underpinning in recent months.
"If you are looking for a port in the storm and you just want somewhere to put your anchor down for a while, then Canada does look like a relatively safe place," said David Watt, senior currency strategist at RBC Capital Markets.
"If you take a list of countries and decide where you don't want to put your money, you'll start cancelling places off and Canada is one of a few that is left as a place that still is in relatively good shape."
The global economic backdrop, while somewhat improved from just a couple of months ago, is bearish for the Canadian dollar since demand for Canadian commodities could deteriorate.
But Canada's fiscal situation remains in relatively good shape and the economy, even though it is weakening, does not face the same headwinds that the US or UK economies do.
Combining that with an unwind of the risk-averse trades that sent the US dollar higher in recent months, it becomes less of a surprise that the Canadian dollar has started to show a stronger pulse in recent weeks.
A three-session streak of gains that continued early on Thursday helped boost the Canadian currency to C$1.1820 to the US dollar, or 84.60 cents (Dh2.54), its highest since November 10.
The currency eventually backed off those levels and with less than two weeks to go in 2008 is down about 15 per cent on the year.
That pales in comparison to the 17.5 per cent surge recorded in 2007, which included a stint above U$1.10.
A Goldman Sachs note released last week said the Canadian dollar is starting to offer value at current levels given the economic picture in Canada.
The note said the Canadian currency could rise to C$1.15, or 87 US cents, over the next six to 12 months.
But not everyone is banking on the Canadian dollar to post a meaningful rebound next year and take any significant chunk out of the losses suffered this year.
"We got the Canadian dollar rising a bit over the course of next year, but not a lot because we think those two big forces will play to narrowly a standstill," said Doug Porter, who is deputy chief economist at BMO Capital Markets.
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