Aussie equal to loonie

For the first time since 2004, Australia's dollar reached parity with the loonie...

The Australian currency has appreciated almost 8% against the U.S. dollar this month and is nearing a record high. The surge is largely a by-product of the two-speed global recovery that is unfolding, with emerging markets demonstrating robust signs of growth while advanced economies struggle with massive government and household debt.

Wednesday's milestone for the Australian dollar was partly driven by more good news from China - a survey of purchasing managers that suggested Chinese manufacturing accelerated for a second straight month in September. Australia benefits because of its proximity to China and other Asian economies, as well as its vast array of natural resources that emerging markets crave.

In contrast, the Bank of Canada is expected to take a pause on weaker-than-expected data, and decision makers at the U.S. Federal Reserve are expected to debate the merits of buying up more assets, or quantitative easing, to juice up the American recovery.

Investor appetite for Canada could fall further Thursday as Statistics Canada reports GDP data for the month of July. The consensus among private-sector economists is that Canadian economic activity contracted in July from the previous month - an outcome that Jim Flaherty, the Finance Minister, indicated was a possibility in speaking to reporters Wednesday on Parliament Hill.

Avery Shenfeld, chief economist at CIBC World Markets, said the Canadian dollar could weaken further against other currencies. "We are running a very large trade deficit which is a sign that the Canadian dollar is overvalued and propped up by capital inflows."

But that capital could go elsewhere in search of higher yields - such as Australia - if the Bank of Canada signals its intent to refrain from further interest rate hikes for the time being, Mr. Shenfeld said.

Source: Financial Post