Loonie seen rebounding past parity

The loonie resisted pressures to dip below parity most of Thursday and a leading currency strategist says the dollar could touch $1.04 in the days and weeks ahead.

At one point, the Canadian dollar came off overnight lows to match its 22-month high of $1.008 US reached Wednesday. Just before market close, the loonie retreated slightly to 99.67 cents US, according to quotations provided by BMO Capital Markets.

“It’s really not surprising the Canadian dollar is holding strong against the Australian dollar and the New Zealand currency,” Scotia Capital’s Sacha Tihanyi told QMI Agency.

The loonie dipped a bit overnight for several reasons, including the onset of risk aversion because of increased concern about Greece’s debt troubles. The renewed fear caused the safe-haven U.S. dollar to rise against most foreign currencies with the exception of the yen.

Thursday’s early comeback surprised analysts who expected the lack of any new Canadian economic indicators would dull the loonie. Later in the day, sagging oil prices and bruised investor confidence due to weak U.S. labour market data weighed on the currency.

Going forward, the dollar’s uptrend remains intact but lots of U.S. dollar bids have slowed the rally and the market isn’t overly eager to bolster the loonie much further ahead of the next Bank of Canada announcement.

Still, there could be a few surprises to the upside, Tihanyi said. The loonie hasn’t hit $1.04 or higher since 2007, when it reached $1.10 for the first time in more than three decades.

A Bank of Canada meeting is scheduled for next week, but Tihanyi doesn’t see interest rates rising until at least June. “The dollar is highly dependent on the Bank of Canada,” he said.

Looming Canadian rate hikes should increase the pace of the loonie’s gains, according to Knightsbridge Foreign Exchange’s Rahim Madhavji.

“The Canadian dollar parity party is in full swing, however further Canadian gains will be at a much slower pace as the existing long Canadian positions get trimmed on profit taking in the absence of new bullish Canadian catalysts,” he wrote in a note.

The dollar could also rise on increased commodity demand from China. The country's reported gross domestic product grew nearly 12% in the first quarter from a year earlier, much faster than anticipated.

Scotia Capital has forecast a period of sustained currency appreciation stretching to at least the end of 2011, with the Canadian dollar hovering around $1.05.