The world’s No. 10 economy is in a favorable situation, enjoying plausible levels of unemployment and isn’t feeling the US slowdown so far.
USD/CAD already settled below parity during August. What moves the C$?
- Sound economy: The low unemployment rate, continued growth and relatively low debt all support the loonie.
- Hawkish central bank: On this background, the BOC is able to discuss a return to full capacity, even if the forecast was now moved to H2 2013. There is also talk about raising the rates.
- US Demand: So far, this has been positive for the US, as its big southern neighbor is still growing. 75% of exports are to the US. A downturn in the US might weigh on the loonie.
- Safe haven: Canada enjoys the trust of many countries, including Russia. This comes despite the dependency on the US and the underwhelming debt-to-GDP ratio of 83%. Nevertheless, Canada has a small safe haven status.
- Oil: With a major pipeline to the US flowing north to south, it is easier for Canada to export its oil. Never-ending Mid East tensions keep the price of oil relatively high, and this also contributes to the strength of the loonie.
- Housing Bubble: Prices in Toronto are of worry to many Canadian officials. It’s hard to tell if the situation is under control. This remains a risk factor.
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