State Street Global Markets is toying with the idea of the Canadian dollar returning to parity with the U.S. greenback in a new research note.
The firm suggests that parity between the currencies could return. In the research note, it points out that institutional investors seem to have a low opinion of the American dollar, based on the fact that State Street Global Markets’ Foreign Exchange Flow Indicator shows the largest short dollar position held by institutional investors since November 2004.
“The position of Canadian dollar could not be more different,” it notes. “The U.S. dollar/ Canadian dollar is close to reaching its 1991 low of 1.12 but State Street Global Markets’ strategists think it has further to go and have initiated a long position in their currency overlay portfolio.”
It also points out that the strength of commodity prices will boost the terms of trade of Canada. “Today they are 20% better than the previous peak against the U.S. dollar in 1991,” it says. “Also, because of Canada’s superior inflation performance since 1991, the Canadian dollar’s real effective exchange rate is 7% lower than that peak.”
“The commitment of the Bank of Canada to further tightening is also supportive, as is the election of Stephen Harper,” it adds. “A cut in goods and services tax will give a boost to consumption and further business and personal tax cuts are on the cards.”
Canadian, U.S. dollars approaching parity: report
Institutional investors have low opinion of greenback, says State Street
- By: James Langton
- February 6, 2006 February 6, 2006
- 08:30