[LINK] "The loonie’s not on steroids, the U.S. dollar is on the mat"

[rfmcdonald]

The Canadian dollar briefly peeked above parity with the United States dollar today, but as Nicholas Babad noted in the Globe and Mail, that's due to the weakness of the American economy rather than the strength of the Canadian.

The loonie hit a high of $1.0019 U.S., then slipped back to just below parity. It’s not so much that the Canadian currency is rising as it is the U.S. dollar falling, noted Scotia Capital currency strategist Camilla Sutton. In fact, the loonie has underperformed compared to other major currencies. The greenback today fell to a new 15-year low against the yen, for example, and the Australian dollar also closed in on parity, a level it hasn’t hit in almost three decades.

"The last time the currency moved through parity was in early April of this year," Ms. Sutton said. "That move was based on a strong [Canadian dollar] fundamental outlook (strong sovereign position, outperforming domestic fundamentals, the expectation for [Bank of Canada] interest rate hikes, and bullish investor sentiment).

"This most recent move has actually been on the back of weakening [Canadian dollar] fundamentals (Canada’s close ties to the U.S. are weighing on the growth outlook and the BoC is not expected to raise interest rates again until the second half of 2011). This implies that [the Canadian dollar] should continue to strengthen until the broadly based [U.S. dollar] weakness completes. By our estimates there is still further to go."

Myself, if the Canadian dollar were to attain parity and stay there--as it did for a while a year ago--I'd prefer it not be through the Barb Wire route of American immiseration.