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Analysts see gains ahead for Canadian dollar

TORONTO: The Canadian dollar climbed on Thursday against losses in the euro and more gains could be in the offing by year-end, analysts said.

The dollar rallied mid-Thursday to a level near C$1.4318 or 69.84 US cents from about C$1.44 (69.44 US cents) overnight, spurred by a sharp drop in Europe's single currency. It officially closed the North American session at C$1.4353 (69.67 US cents), said the Bank of Canada.

Traders sold off their Canadian holdings to purchase the euro once it struck the US$1 level and quickly reversed their operations in the last European trading session once it sank below parity.

"The Canadian dollar's been on an appreciating trend in the last six days or so, and the most rapid acceleration coming in the last three days," said Jeoff Hall, managing Canadian market analyst at Thomson Global Markets.

The euro tumbled to uncharted lows against the US dollar, below a dollar, as Europe's single currency succumbed to doubts over regional economic prospects. Also, at a summit last week the Group of Seven failed to to express concern over the euro's weakness.

"The Canadian dollar rallied today on a move on the back of the Euro markets," said chief strategist Andrew Pyle at ABN AMRO Bank Canada.

The dollar, fondly called the loonie after the engraving of a loon on its face, has reached strengths not seen since May 1998, Pyle added.

Pyle credits improvement in global economies along with strong prices for oil and other commodities in a market still closely tied to the export of natural resources.

"The global backdrop remains positive, people remain upbeat American in terms of Asian growth, and to a lesser extent, European growth," he said.

Over the next few days the dollar could pull back, ahead of the US Federal Reserve meeting on February 2 when US central bankers are expected to raise short-term interest rates by 25 basis points.

Pyle pointed out that over last three US Federal Open Market Committee meetings that produced 25-basis-point increases, the Canadian dollar rallied in the weeks before the meeting, but then sold off in the last two-three days before verdict.

"This is a good move, it's a very strong move for the currency but we're probably going to see a pullback now, before the market sees the result," Pyle said.

If global and commodity fundamentals continue to improve, then the outlook remains positive for the currency, Pyle added. The Canuck buck could sink below C$1.40 soon and then through C$1.35 by year end, Pyle predicted.-Reuters