Loonie sneaks past aussie
Jack Atley/Bloomberg News
The Australian, Canadian and American dollars effectively now sit in a three-way tie.
Tim Shufelt, Financial Post · Friday, Oct. 15, 2010
Aussie pride runs deep, in part for what its citizens have to endure.
Consider: Nearly every creature that roams, swims or slithers through the island continent is oozing with some brand of crippling venom.
That patriotism has recently extended to strong economic fundamentals, which have hoisted the Australian dollar against the greenback, producing an impressive currency run that has the country on parity watch.
But 'ang on, mates. While you were coppin' it sweet, Canada slipped past and stonkered youse.
Before the Aussie dollar could stand eye-to-eye with the greenback for the first time in almost three decades, the loonie reached parity Thursday for the third time in three years.
Effectively, the three currencies now sit in a three-way tie.
And although Australians have yet to ring the official bell, the smart money, for those looking for a currency play, is probably on the Aussie dollar.
"It's tied to Asia, it has a commodity story, and its fundamental economy is in better shape than Canada's," said Camilla Sutton, a currency strategist at Scotia Capital Markets.
In accordance with most forecasts, Ms. Sutton sees the Aussie dollar outperforming the loonie in the coming months.
With a couple of important differences, a similar economic story is unfolding in the two countries. After the deepest gloom of the global financial crisis dissipated, both have shown relative strength amid a stubborn recovery on the basis of strong commodity markets and access to abundant natural resources.
But Australia enjoys a key geographical advantage in its proximity to Asia. While the outlook for North American markets is mixed, investors are pouring money into fast-growing emerging markets such as China.
And the hunger for resources associated with emerging market economies has helped keep Australia afloat.
"That's really transformed their recovery in a very different way than Canada's," Ms. Sutton said.
And the Australian exchange rate, as a reflection of the general position of a country's economy, has soared as a result. Since June, when the U.S. dollar hit a peak on the year to date, the Australian dollar has risen 23%.
By contrast, the loonie has jumped just 7% against the U.S. dollar.
Canada's closest neighbour and primary trading partner continues to struggle with an ongoing correction in its housing market, double-digit unemployment and stagnant consumer confidence.
It was the prospect of further quantitative easing in the United States, in fact, which lifted the loonie even with the U.S. dollar this time around, rather than any outperformance in Canada.
"Now, we're getting data that is somewhat mixed still, but certainly less supportive than it was in the first half of the year of ongoing strength in the economy," Ms. Sutton said.
Read more: http://www.financialpost.com/news/Loonie+sneaks+past+aussie/3675270/story.html#ixzz12QTbwKJD
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