Canadian dollar eyes parity after Fed rate decision

Hello everyone, Although the dollar went down after the news in Greece it appears to be on the rise again. I noticed this article this morning.

TORONTO (Reuters) - The Canadian dollar extended gains against the greenback on Thursday and looked set to make another run at parity on renewed risk sentiment that included a reaffirmation that Canada will be raising interest rates before the United States. On Wednesday, the Fed decided to leave its benchmark interest rate near zero for an extended period and voiced cautious optimism about the economic recovery, as did the Bank of Canada last week. But unlike Canada's central bank, the Fed reiterated its intention to keep interest rates low for the foreseeable future.

Higher interest rates, or the expectation of higher rates, attract capital and stoke demand for a country's currency. "Higher rates in Canada with no move in the United States is going to be very positive for the (Canadian dollar)," said C.J. Gavsie, managing director of foreign exchange sales at BMO Capital Markets.

"All the strong correlating factors as to why Canadian dollar should be stronger, whether you look at equities, risk-on play on a global scale, weakness in the U.S. dollar, obviously, what we heard from the Fed yesterday, and oil being up again this morning, everything is pointing to that we should be challenging parity today."

The euro also rose against the U.S. dollar, rebounding from a one-year low the previous day, as reports that a planned aid deal for Greece would be bigger than initially thought boosted the ailing currency. Global equities and U.S. stock futures drifted higher along with oil prices, which helped support Canada's commodity-linked currency.

At 8:22 a.m. (1222 GMT), the Canadian currency was at C$1.0021, or 99.79 U.S. cents, up from C$1.0088 to the U.S. dollar, or 99.13 U.S. cents, at Wednesday's finish. Gavsie added that month-end rebalancing of assets by investors is also expected to be favorable for Canadian dollar buying. "We're going to very focused on 'Are we going to be breaking parity again today?' I think we are going to take a stab at it."He said that currency players will eye key resistance levels at a high of C$0.9975 and low of C$1.0085. "I do believe we will be challenging parity. Most of the activity will definitely be taking place between now and noon (1600 GMT) ,so I'd say that's where the likelihood is going to be." With riskier bids back on the table, Canadian bond prices were mostly lower across the curve.

The two-year Canadian government bond fell 12 Canadian cents to C$99.125 to yield 1.988 percent, while the 10-year bond dropped 9 Canadian cents to C$97.900 to yield 3.752 percent.

Gavin Heintz

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