Canada's dollar hit its highest in more than 30 months on Friday, boosted by rallying commodities, to close out the year above parity with the US currency on scant New Year's Eve trading volumes. The Canadian dollar reached as high as C$0.9925 to the US dollar, or $1.0076, a peak last touched in May 2008, after briefly poking through a technical support level.
Analysts noted the move to break C$0.9931 to the US dollar came under very thin trading conditions on the last day of a year that included the Bank of Canada's first rate hikes following the financial crisis, euro zone debt troubles, rising commodity prices, and the US Federal Reserve's stimulus plans. The gains were also made as the US dollar fell broadly as investors closed their books on 2010.
The Canadian dollar's strength also coincided with a reversal in the price of oil, which surged back above $91 a barrel as the weaker US dollar and technical support stopped a bout of year-end profit taking. Other commodity-linked currencies, such as the Australian dollar - which hit a 28-year high against the greenback - remained in favour on expectations that Asia will extend the global recovery in 2011.
"Canada is kind of in the middle of the pack ... but you're getting that sense that, after a long year and some very shallow trading, there's this sentiment of a weaker US dollar heading into year-end," said David Tulk, senior macro strategist at TD Securities.
The Canadian dollar finished at C$0.9946 to the US dollar, or $1.0054, up from Thursday's close at par, which was the loonie's first finish at the one-for-one level since November 10. "The market does appear to have some optimism built into it, just like yesterday. We've seen a bit of a breakout in terms of the dollar/Canada range that has dominated in the last few sessions ... but it's thin and it's the year-end," said Jack Spitz, managing director of foreign exchange at National Bank Financial.
Slim trading volumes ahead of the New Year's holiday brought choppy conditions for the Canadian dollar but, overall, the currency will hover around parity into 2011, analysts say. "We're still constructive on our outlook for the Canadian dollar. All the fundamentals of support are still there and we expect further monetary policy support to come in line in the second half of 2011," said Sacha Tihanyi, currency strategist at Scotia Capital.
"We also think that it's behaviour is (going to) be very much like we saw in 2010 in the sense that gains are going to be restrained and there's going to be a lot of back and forth." Tihanyi expects the Canadian dollar will rise 4 percent from current levels, slightly less than this year's advance of 5.7 percent.