Global Investors Jump Onto The Canadian Bandwagon

Global Investors Jump Onto The Canadian Bandwagon

More global investors are jumping onto the Canadian bandwagon. The Canadian dollar cracked the 99-cent U.S. mark on March 17th, inching ever closer to parity with the U.S. currency as traders bet on a strong Canadian recovery and continued fiscal prudence from the Stephen Harper government.

These days, it's uncommon to hear a bad word spoken about investing in Canada. Unlike the US, Canada is neither burdened by an enormous debt load nor a ballooning deficit, nor a hobbled financial sector nor a gloomy housing market. The economy is starting to add jobs, not lose them. Plus it's plugged into the global trade in natural resources, with its current of demand from faster-growing developing economies like China.

The loonie, which climbed past 99 cents and then fell back slightly to close at 98.98 cents, has now shot higher in 12 of the last 13 trading days. Economists credit the economy, Ottawa's fiscal projection and firm commodity prices for the attractiveness of the loonie. Also at play are expectations in the markets that the Bank of Canada will hike interest rates before the Federal Reserve, which pledged again Tuesday to hold its benchmark rate at its historic low near zero for an extended period.

With parity in sight, the question now becomes whether it can last. When the dollar last eclipsed the U.S. currency a few years ago, it hit $1.10 (U.S.) in September, 2007, before tumbling back down and hovering around parity for around 10 months. It hasn't hit parity since July, 2008. How long will it last this time?

Many analysts noted that the last time the dollar topped the greenback, the move hurt exports, in turn dampening economic growth prospects and knocking the currency down again. Hence, this time around there is a good that a higher Canadian dollar is sustainable.

Still, one cannot ignore the risks out there including the potential for a Canadian housing bubble and a slowdown by China and its demand for Canadian natural resources. Both would knock the loonie back down below parity.

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