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Foreign Exchange Insight : USD/CAD Rate Hits 40 Month Low as Outlook for Canada Improves

March 1, 2011 - Written by John Cameron

As expected this afternoon, the Bank of Canada opted to maintain interest rates at their current 1.0% level. However, the CAD edged slightly downwards against the majors in the aftermath of the decision as the accompanying statement noted that the Canadian economy still has ‘significant excess supply’, playing down inflationary pressures in the economy.

Yesterday’s better-than-expected quarterly Canadian GDP figure has provided significant support for the Canadian Dollar in the currency markets. Analysts had expected the quarter 4 figure to come in at an annualised 2.9% and were surprised when the published figure was 3.3%. This number is particularly significant, as it now shows that the Canadian economy is growing at a faster pace than its US counterpart.

The positive growth figure has seen the Canadian Dollar reach its strongest level against the US Dollar since November, 2007. The CAD has spent a large part of today’s session trading below 0.97 against the Greenback. A close below this level would be a highly bullish signal for the Canadian currency.

Although the price of a barrel of Brent crude oil has edged down from last Thursday’s 30-month high of near to $119, it continues to hold above $110 as concerns persist over the continuity of supply from leading Arab states.

With the Canadian economy showing considerable structural strength in comparison to its US neighbour, it is possible that the Canadian Dollar will make further gains in weeks to come as it continues to pick up safe haven support during dips in global risk sentiment.

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