Strong US dollar obscures Canadian currency's rise

US dollar bulls, who have spent the last two weeks gleefully watching the greenback swim higher against its rivals, may not have noticed a smaller fish lurking in its wake. But the Canadian dollar has been mounting a quiet charge of its own, sparked by pricey commodities, a clean economic balance sheet and an apparent shift in sentiment from formerly cautious Canadian officials.
The Canadian dollar has retreated about 1.5 percent over the past two weeks against a US dollar that has rocketed higher on expectations that rising inflation pressures will trigger aggressive US Federal Reserve rate increases.
But the Canadian unit has been a buy against other major currencies, rising 1.8 percent against the euro, 1.6 percent against the yen and 1.7 percent versus the Australian dollar, a currency that typically also gets a boost from strong resource prices.
At mid-afternoon on Monday the Canadian currency was at C$1.2222 to the US dollar, or 81.82 US cents.
With Canada's current account and budget surpluses, as well as a resource-oriented economy, the currency has been well positioned to stay on the good side of the recent run-up in commodity prices - particularly oil, which has been hitting record highs.
But analysts say what has given the currency its most recent boost against its overseas rivals has been a surprising change in the tone of currency-related statements coming out of the Bank of Canada and the Finance Ministry.
Speaking on March 11, Bank of Canada Governor David Dodge acknowledged that Canadian interest rates will have to rise in the "foreseeable future", then he said just last week that the Canadian dollar's recent rise has been appropriate.
Coupled with Finance Minister Ralph Goodale's recent remark that the domestic economy was performing better than expected, analysts say this has killed market whispers that he Bank of Canada might have been considering an interest rate cut to reel in the high-flying currency.
The currency rose about 30 percent in 2003 and 2004 against the greenback, charging above 85 US cents last November. It has retreated since then to hold in the 80-83 US cent range.