Loonie Recovers As Bears Overextends

The Canadian dollar rose from almost the lowest point in more than three years on bets the currency had fallen too far, too fast after the Federal Reserve announced it would slow its monetary stimulus program.

Canada’s currency was still headed for a yearly decline against its U.S. peer as the Fed was set to allow borrowing costs rise when it begins reducing bond-buying in January. Both the Fed and the Bank of Canada are forecast to keep benchmark short-term interest rates unchanged through the second half of 2015, according to Bloomberg economist surveys. Speculators pared bets against the loonie from a seven-month high.

“We’re seeing some marginal recovery in the Canadian dollar, primarily on rebalancing and position squaring,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada, by phone from Toronto. “One can make an argument that if risk continues to take a bid, then I think some of those drivers that we’ve seen a few years ago will likely come back into the forefront and could push the Canadian dollar stronger as a risk-related currency.”

Bloomberg

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