Canada Markets

The Canadian dollar rallied Wednesday on the news of the agreed upon solution to avert the U.S. economy's plunge over the fiscal cliff. It was a "risk-on" day, as money poured into commodities and the so-called commodity currencies, such as Australia, New Zealand and Canada.

Gold gained $13.10/ounce, while NYMEX crude gained $1.30/barrel. The TSX closed 107.24 points higher, ending the session at 12,540.77, reaching a 10-month high. The Canadian dollar closed 89 basis points higher at $1.0126 CAD/US dollar on the March contract, after reaching an intra-day high of $1.0149. At the same time, the dollar respected the resistance from recent weekly highs and remained within its trading range which has governed price movement during the past month.

As seen on the attached chart, the March dollar traded within a range of $1.0111 and $1.0158 since the week of Nov. 26. Yesterday's trade saw prices gap higher, through the resistance of the contract's 20-day and 100-day moving average (not shown). Despite the rally, the loonie failed to break the resistance of two recent weekly highs, at $1.0150 and $1.0158.

Late session weakness Thursday led to pressure on the dollar, as the U.S. Federal Reserve meeting minutes indicated that the latest QE3 stimulus program could end at the end of 2013. This news will be viewed as leading to a contraction of the economy and will stifle prospects for commodities. For now, the market for the Canadian dollar is content within its $1.0111 and $1.0158 trading range.

In November, the International Monetary Fund announced its intention of adding both the Canadian and the Australian dollars to the short list of five reserve currencies in the world -- the U.S. dollar, the euro, the pound sterling and the Swiss franc. Moving forward, member nations of the IMF will include statistics for reserves held in both the Australian dollar and the Canadian dollar. These two countries were picked due to their economies' financial stability, the currency's stability against the U.S. dollar and the degree of soundness of their banking system.

The question remains whether this move will attract increased interest in the loonie, which can create further challenges to our already troubled export sector. Increased daily volatility, such as seen yesterday, could be a more common feature in the market. Moving forward, IMF data may shed a light on this.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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