euro posts

The Canadian dollar has kicked off 2011 in a position of strength. It is above parity with the U.S. dollar and trending at historically high levels against other major currencies such as the euro and the British pound.

At the end of its first week of trade for the new year the Canadian dollar was buying about US$1.01, 78 euro cents and 65 British pence -- all stronger than average levels. But what is driving this strength in the loonie?

Canada's economic strength compared with the rest of the world has attracted a lot of private investment in Canadian denominated assets. But Avery Shenfeld, chief economist at CIBC, says there is more to the high exchange rate than meets the eye. Mr Shenfeld says central banks around the world are also very interested in Canadian dollars in a bid to diversify their assets at a time when the U.S. dollar has lost purchasing power. This additional demand for the loonie may be overheating its value and crippling the Bank of Canada's ability to raise interest rates and curb rising consumer debt levels.

Few summer destinations share the enchanting appeal of the Greek Islands, an intoxicating mix of sun, beaches, delectable food, wine, Mediterranean architecture and history. And then there's the mainland, dotted with ancient wonders such as the Acropolis, Olympia and Delphi.

The good news is since the euro's introduction, there's never been a more affordable time to vacation in Greece and soak up some of that vitamin D. The loonie has just hit a record high against its European counterpart making accommodation and food cheaper.

The global financial crisis, recession and now the Greek debt crisis, has caused the value of the euro to plunge against most currencies around the world. The loonie currently buys about 80 euro cents, a record high level and up from about 58 euro cents at the beginning of 2009. If the Greek economy begins to get back on track, it is fair to say that the Canadian dollar will ease its way lower versus the euro, although that will not likely begin to happen this year.

Just when we thought things were getting better, the world economy gets shaken up by a Greek debt crisis and sends stock exchanges and currency markets into a tizzy. Before the latest crisis, all the signs had pointed to the loonie sticking at parity with the U.S. dollar and likely even surging back towards that US$1.10 high of November 2007.

But, on a dime, it all changed as cautious investors looked for safe places to park their money in case the crisis grew out of control. The Canadian dollar is down at about US93 cents, 7 cents short of where it was just a month ago. Looking at it historically, the loonie is at a firm level, and once the markets are confident the Greek debt crisis is under control, it should once again begin to climb against the greenback.

But we often get too carried away with what the loonie is doing against its biggest trading partner and forget what's going on with the rest of the world. In fact, when we look at the Canadian dollar compared to other world currencies, the loonie has been putting in a stellar performance. So what does this mean for you?

After hovering in the high 90-cent range for the month of March, for the first time since July 2008 the loonie finally hit par with the U.S. dollar today.

At the same time, economic woes in Greece, Spain and Portugal have sent the euro, which had lost 200 basis points since Friday and was trading around $1.34 this morning, into a nosedive. Meanwhile, a slow recovery from the recession has sunk the British pound in the U.K., while an election call for May 6 sparked a sell-off of sterling over fears of a parliamentary deadlock. The pound, which historically has floated around $2 Canadian, slipped to a low of $1.51 this morning.

That's right, the last time it was this cheap to travel to the United Kingdom was in 1985, the same year the remains of the Titanic were found off the coast of Newfoundland.

The British pound has fallen 8.7% against the Canadian dollar, which is a 25 year low for the royal currency. But it's not just the UK that's now cheaper: the Canadian dollar has been strengthening against most of the world's major currencies, making travel to the United States, Japan, Europe and Australia more affordable.

The loonie is buying more than 64 British pence at the moment, compared to a low of about 52 pence in July last year. Likewise, you can now get 71 euro cents for each loonie, compared to roughly 59 euro cents this time last year.