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Canadian Dollar Gathers Pace, but Outlook isn’t Rosy

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Canadian Dollar Gathers Pace, but Outlook isn’t Rosy

The Canadian dollar surged Tuesday, as risk aversion in the global financial markets began to fade ahead of an active second half of the week.

The loonie climbed past the key 91 US cent threshold for the first time since mid-April, rising nearly 0.6 percent to 0.9121. Canada’s currency, which tread water last week, has strengthened over the past month as firmer Canadian data boosted the outlook on the economy.

Canada has one headline statistical release this week. The government’s statistics branch will report on gross domestic product Wednesday. The release is expected to show Canada’s economy expanded 0.2 percent in February, following a gain of 0.5 percent the previous month.

The outlook on the Canadian dollar, however, may not be as rosy as the latest surge implies. Canada’s dollar has tumbled nearly 5 percent this year against a basket of 10 developed-nation currencies tracked by Bloomberg. In fact, the loonie has been the worst performer in this group, trailing considerable behind its commodity-driven peers. Weak demand from the United States, Canada’s biggest trade partner, is partly to blame for the loonie’s weakness.

Unlike Australia and New Zealand, which rely on a wider range of international trade markets, Canada exports three-quarters of its goods to the United States, where severe weather disrupted demand this winter.

Overall, the loonie has tumbled 3.6 percent against the US dollar this year. In 2013 the Canadian dollar fell 6.6 percent against its chief rival, the sharpest decline since the financial crisis.

The loonie will take another hit this week should the US Federal Reserve decide to trim asset purchases further, as expected. The Fed has pared asset purchases by $30 billion since December. Fed Chair Janet Yellen announced at the last rate decision the central bank could raise interest rates six months after the culmination of QE3.

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