The Canadian dollar will reach parity with the U.S. currency by the end of 2007 with the help of high commodity prices, ongoing merger-related interest and higher interest rates, CIBC World Markets said on Friday.
CIBC said the Canadian dollar, which was last at par with the U.S. dollar in November 1976, will maintain parity with the greenback into at least the first quarter of 2008.
"Between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of M&A deals, the Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback," CIBC World Markets chief economist Jeff Rubin, said in a statement.
Rubin also said he does not expect the Bank of Canada to intervene with a rising Canadian dollar and that the central bank would actually welcome a higher domestic currency.
With the national jobless rate plumbing 30-year lows and core inflation now bobbing above the Bank of Canada's target range, our earlier assumption of the Bank of Canada intervening against a further rise in the Canadian dollar with rate cuts, no longer seems tenable," Rubin said.
According to Rubin, the Canadian dollar will also benefit from expectations for the U.S. Federal Reserve to cut its key lending rate in the fourth quarter of 2007. Source...