Canuck buck too ‘cheap’ analysts say

OTTAWA — The Canadian loonie is likely to rise up to $1.05 US by early next year, and could perhaps climb back to as much as $1.10 sometime thereafter, analysts predict.

Global Insight chief economist Dale Orr, reports Canwest News, says the loonie is "looking cheap" considering how high oil prices are these days.

He said that based on the traditional relationship between the Canadian dollar and oil prices, a $1.10 US loonie can’t be ruled out over time.

"We conclude that appreciation of the Canadian dollar remains a response waiting to happen," Orr said in an analysis Tuesday.

Since reaching par, the buck has refused to follow the surging price of oil, keeping it undervalued. That, he says, is a result of lags in response to market conditions.

Both the Canadian dollar and oil prices were in retreat Tuesday with the currency slipping to the low 98 cents US level and the price of oil dropping more than $5 to the $135 US level.

Scotiabank currency strategist Steve Malyon told the news service the loonie’s failure to climb higher is also because global investors are scared off with the weak U.S. economy still under pressure."

Still, says Orr, the refusal of the loonie to move upwards at all in the face of 50 percent oil price spikes is out of character with the historical relationship between the two.

— with files from Canwest News