Canadian Dollar Parity Coming Sooner, Not Later. By Nicholas Hastings

The Canadian dollar may have spent all of last week sinking but it is still very much a buy.

Parity against the U.S. dollar is still very much in its sights and will be hit sooner rather than later--especially as investor fears of a Greek debt default have somewhat been allayed.

See the Canadian dollar's recent slide against its U.S. counterpart:



Like most other commodity currencies, the Canadian dollar spent much of last week under downward pressure as investors moved back into the safety of its U.S. counterpart.

Protracted negotiations between Germany and France over how the European Union should rescue Greece kept most financial markets on tenterhooks.

The eventual agreement, in which the European Union and the International Monetary Fund will backstop Greece once it has exhausted all means of raising funds in the open marketplace, is hardly seen as ideal in terms of resolving the deficit concerns of other euro zone countries as well.

Nevertheless, the deal should reduce immediate fears about Greece's ability to finance its deficit and help global market sentiment in general to recover.

The likely rise in appetite for more risky currencies should play straight into the Canadian dollar's hands in coming days as the country prepares to confirm what has long been suspected -- that the Canadian economy continues to recover at a faster pace than the U.S. and that Canadian interest rates will doubtlessly start rising well before those of its southern neighbor.

The good news should kick off on Wednesday with the first quarter gross domestic product estimate, which Governor Mark Carney has already admitted is running well ahead of Bank of Canada expectations.

Carney also noted that the central bank's pledge to keep rates low until June remains conditional on the country's inflation outlook. The latest purchasing managers' survey and unemployment reports due after Easter could help to bring forward those rate hike expectations.

"Rate expectations for Canada have recently risen, and positive economic data over the next few days might fuel these further," noted the currency strategy team at Commerzbank.

Contrast this with rate expectations in the U.S.

Last week, Federal Reserve Chairman Ben Bernanke failed to give any hint that the U.S. central bank is accelerating its rate hike agenda and merely repeated his promises to keep rates low for "an extended period" in his testimony to Congress.

The Canadian currency could also get additional fuel if commodity prices extend their recent gains. Although there are fears that interest rate hikes in Asia, particularly in China, could halt the recent rise in commodity demand, there is little sign of those rate hikes emerging just yet.

Also, there is the simple fact that with the Canadian dollar already this high, heading for parity is just too tempting, whether it is warranted by fundamentals or not.

"Even though the Bank of Canada will not be too pleased about levels below 1.00 in the U.S. dollar/Canadian dollar, this psychological level is simply too close for the markets not to try and retest it," said the Commerzbank strategists, referring to the central bank's preference not to have a currency too strong that will strangle exports.

Continued optimism over Greece's rescue package and an unexpected boost to Japanese retail sales last month helped to keep general market sentiment positive.

The dollar fell to CAD1.0238 by 0745 GMT from CAD1.0255 late on Friday in New York, according to EBS.

The euro rose to $1.3453 from $1.3417 and to Y124.58 from Y124.10. The dollar rose to Y92.59 from Y92.50.