The U.S. dollar was able to strengthen against the Canadian dollar Monday morning and was trading at 1.2120 by 11 a.m.
The Canadian dollar gained 7.9 per cent against the U.S. currency in 2004, reaching its pinnacle at the end of November. It was the third consecutive year during which the Canadian dollar managed to strengthen and many analysts believe that 2005 could bring much of the same, as investors remain concerned about the growing U.S. deficits. In addition, major economies around the world have so far shown little intention to counteract the U.S. currency's steep decline. The U.S. government itself also seems to welcome a weaker currency, since it helps to boost exports while imports become more expensive.
The more negative sentiment about the U.S. dollar could translate into a further decline. During the past two years the U.S. dollar has depreciated by about 24 per cent against the Canadian dollar. From a technical trading point of view the coming weeks will be of vast importance to the further development in the exchange rate between the two currencies. If the U.S. dollar manages to appreciate without any major setbacks it may continue to rise over the coming months. Speculation about further interest rate hikes by the U.S. Federal Reserve Bank is supportive of such a scenario. However, if the U.S. currency experiences pressure over the coming weeks, it would provide further room for depreciation during the months to come.
The euro remained fairly stable against the Canadian dollar at the beginning of Monday's trading session. By 11 a.m. the euro was trading at 1.6300. A report, which showed that the Eurozone's manufacturing sector expanded for the first time in five months in December, also had little effect on the exchange rate. The latest development in the manufacturing sector came on the heels of declining oil prices, which had so far put its toll on the Eurozone's economy. On Nov. 2, amid the preceding surges in oil prices, the Organization of Economic Cooperation and Development (OECD) cut its economic growth forecast for 2005 from 3.3 per cent to 2.9 per cent. Oil prices, however, were not the only segment to put a strain on the economy. A high level of unemployment and strong appreciation of the euro have also led to weakness in economic growth. The euro has appreciated strongly against the Canadian dollar from mid-November to mid-December, but has since retreated from its highs.
Market Report given by Roman Muhlbauer, Commercial Trader, Accu-Rate Corp.
2573 Carling Ave. Ottawa, ON K2B 7H7
Tel: (613) 596-0612
E-mail: roman@accu-rate.ca
