Fundamental Forecast for Canadian Dollar

The Canadian economy is becoming a standout amongst the developed nations which has started to generate support for the local dollar. The sovereign debt issues in European, mounting budget deficits in the U.S. and U.K. makes a fiscally sound Canada an attractive destination for investors. The “loonie” has taken on an unusual role of a safe-haven in the midst of the current turmoil. However, don’t expect the com-dollar to develop a negative correlation with risk as it continues to hold a strong relationship with oil prices. The recent support is more of a vote of confidence for the economy which continues to show signs of improvement. A jump in housing starts to 186K from 174K combined with last week’s strong labor report is evidence of building domestic growth. The International Merchandise trade report declining by 0.2% for a second month is typically a negative and is a product of slumping demand. However, the shortfall in December was due to rising imports outpacing stronger exports.

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