Loonie May Touch 2-Year High Versus Dollar, Credit Suisse Says

Canada’s dollar may gain to the strongest level versus its U.S. counterpart since 2007 amid expectations the Canadian central bank will raise interest rates before the Federal Reserve, according to Credit Suisse Group AG.

“We are raising our forecasts for the Canadian dollar after today’s shift to a more hawkish stance by the Bank of Canada,” currency strategists including Ray Farris in London and Daniel Katzive in New York wrote in a note to clients. U.S. and Canadian government bonds are “now approaching levels in two-year rate differentials that prevailed during the previous U.S. dollar-Canadian dollar push below parity in late 2007,” they wrote.

The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, may appreciate within 12 months to 95 Canadian cents to the greenback, a level last seen in November 2007, the Credit Suisse strategists wrote.

The Bank of Canada signaled today it may be first in the Group of Seven to increase borrowing costs, joining other countries such as India and Australia, as economic growth accelerates and stokes inflation.

Canada’s dollar strengthened 1.6 percent to 99.87 Canadian cents per U.S. dollar, from C$1.0144 yesterday. Canadian two-year notes yielded 2 percent today, 0.99 percentage point more than U.S. two-year notes, the most since March 2008.

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