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Loonie Grinds Closer to Parity

All is well north of the US border and the loonie moves ever closer to parity with the USD.  Early this week we traded, briefly as low as 1.0271 versus the USD before the rally in the loonie resumed.  Last trading at 1.0074, we are now poise to assault the 1.0059 established 03 19 2010.

The C$, as always, has received a boost from strong crude prices.  This morning the crude price is flirting with the yearly high of $85/barrel, and gasoline prices surged to a 17 month high.  Attributing to the strength of crude was the US unemployment report which showed the US economy was shedding jobs at a slower rate.  Ignored in today's  analysis is the damage done to the struggling consumer  who has seen the price of gasoline go up $1 per gallon during the past year.  Tomorrow we get the NFP report, expected to show a big pickup in jobs.  Hiring 1.15 million US census workers will likely, further the impression that the recovery has some legs.

News from Canada remains constructive.  Released this week was a monthly comparison of Canada's GDP which showed a better than expected 0.6% increase.  Investment in the development of Canada's oil sands continues.  Yesterday the Financial Post reported:

CALGARY - Athabasca Oil Sands Corp., which has a partnership with one of China's state-owned oil companies, raised $1.35-billion in an initial public offering yesterday.

"But despite the massive IPO, the company warned it will need even more cash in the next five years as it plows ahead with its MacKay River and Dover oil-sands projects. MacKay River is slated to hit commercial production in 2014, and Dover in 2015......The deal is not only the biggest Canadian IPO in years, it is close to being as large as the entire Canadian IPO market last year."

The Chinese have found a way to recycle their surplus dollars; invest them in the development of the massive Canadian oils sands.  This capital intensive project benefits both China and Canada.  In the process the C$ benefits  as long term investment funds flow into the country, and the prospects are bright for a bountiful future income stream should oil prices remain above $80.

It is hard to say anything bad about the C$, because it has a lot of things working in it's favor.  The Central Bankers no longer seem frightened by the prospect of parity with the USD, and they keep droppings hints that they may be the first among the G7 to increase their bank rates.  As we mention yesterday, the C$ has had a nice run versus the yen, advancing about 1000 pips during the last six weeks.  For the bulls it has been a great run, but this parity party has been going on for quite a while and the crowd is big.  Perhaps next week we will find a reason to join the party, but for the moment we choose to be a recluse, away from the crowd.



Disclosure: no equity positions