The loonie was trading at an average price of 79.96 cents US, up. 0.04 of a U.S. cent on Tuesday, a day after it hit 80 cents US – a level it hasn’t closed at in more than two years, against a weakening in U.S. currency and amid further signs of a strengthening Canadian economy.
The Canadian dollar has been steadily climbing over the last two months.
Since early May, it has added more than seven cents. Its upward march has been fuelled by the Bank of Canada’s decision earlier this month to raise its key benchmark interest rate for the first time in close to seven years.
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There are now expectations that one or possibly two more rate hikes could be in the offing before the end of the year as signs continue to point to a robust economy.
Earlier Monday, Statistics Canada reported that wholesale sales hit a record high in May as they climbed 0.9 per cent to $61.6 billion. Economists had expected an increase of 0.5 per cent, according to Thomson Reuters.
Isaac Holloway, an assistant professor at the Ivey Business School at Western University, said the gain in the Canadian dollar will have the biggest effect on importers and exporters, though it will likely be months before consumers see the fallout.
“Anyone importing or consuming imported goods could be seeing relief on the price front,” he said from London, Ont.
“On the flip side, anybody who is exporting is going to have to lower their prices to remain competitive with foreign competitors.”
A stronger loonie will also likely encourage more Canadians to travel south of the border, he added.
Shaun Osborne, chief currency strategist at Scotiabank, said he doesn’t expect the dollar to rise much more despite the strong economic performance as of late.
“A lot of good news is already priced in at this point,” he said.
“It’s difficult concocting what else will help it continue to rise. We’ll see a stabilization in the short run for the Canadian dollar.”
Osborne noted that there are a number of factors besides monetary policy that has helped the currency rise. The loonie has benefited from a lower U.S. dollar, which has been hit in recent months by political uncertainty under the Donald Trump administration.
But the greenback can strengthen, and in turn, bring the Canadian dollar lower, if the U.S. Federal Reserve continues on its interest rate hike schedule this year. The Fed kicks off its latest two-day monetary policy meeting on Tuesday.
Oil prices, which also heavily influence the loonie, have been stuck between US$40 and US$50 per barrel in recent weeks. Expectations are that crude prices won’t break out from that range, which would mean the Canadian dollar will not find additional support from the commodity.
“It’s going to be difficult for the Canadian dollar to advance at its current pace without more significant news and it’s difficult to see where that news is going to come from,” said Osborne.
