The TSX, Canada’s main stock index is the leading North American Index right now. Trading at record levels, the TSX is up 3.6% year-to-date and 17.5% year-over-year. This far outpaces the S&P 500, which is down 3.5% in 2022 and up 16% year-over-year.
Canadian stocks are not the only investing opportunity attracting attention, the Canadian dollar, or Loonie, recently topped $0.80 against the U.S. dollar, with analysts calling for more gains.
Is There More Room for Growth for Canada’s Bullish Loonie?
The Canadian dollar recently passed the $0.80 threshold against the greenback for the first time since January. Most investors think the strong gains come on the heels of exceptionally robust commodity prices, and with crude oil at $100 per barrel, it certainly helps.
But there’s more to the recent bullishness of the Canadian dollar than commodity prices. Over the last number of years, the Canadian dollar has moved away from being pegged a “petrocurrency.” The financial sector, consumer spending, and real estate market now all play a much bigger roll in the Canadian economy than crude oil does.
Recent tailwinds, including an improving economy and hawkish Bank of Canada are helping fuel strong growth in the Loonie compared to the U.S. dollar. Encouraging news out of Ukraine is also playing a role with fewer investors turning to the greenback as a safe haven play after Russia invaded Ukraine.
Bond yields are also doing a lot of the heavy lifting with the Bank of Canada and U.S. Federal Reserve both hinting at more aggressive rate increases. Many believe the Bank of Canada will shift from 0.25% increases to half-percentage point increments, with the first such move coming in April.
This points to interest rate hikes of between 200 and 225 basis points over the six remaining rate announcements in 2022. That’s up significantly from the 140 basis points projections from earlier this year.
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Backed by a strong economy, with solid job gains and the unemployment rate below its-pre-pandemic levels, and the support of strong commodity prices, the Canadian dollar continues to be one of the best-performing currencies. Even with oil prices forecasted to pull-back from multi-year highs, the Loonie is expected to continue its hot streak in 2022. For investors interested in currency trading, commodities, and the stock market, the trading experts at Learn-To-Trade.com can show you how to spot market trends and read economic cycles.
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