A Bank of Canada interest rate hike and increased demand for commodities are a few factors that could push the Canadian dollar above par with the U.S. greenback, according to a report by CIBC World Markets.
The report forecasts the loonie to hit $1.02 by September before falling back to $0.97 by year's end. The expectation is based on the assumption that the Bank of Canada will raise interest rates in the third quarter, a full six months ahead of a potential increase by the U.S. Federal Reserve.
Avery Shenfield, CIBC's chief economist noted that the loonie has been gaining several cents in recent weeks as the market begins to expect a Bank of Canada interest rate hike in July. "It's easy to see the Canadian dollar running a few cents through parity after the first hike."
Other factors could also boost the dollar's value. Increased demand for commodities such as oil, minerals and fertilizer could boost the loonie as exporters try to repatriate profits.
A potential resurgence in the mergers and acquisitions market this summer could also impact the dollar with increased inflow of foreign investment in Canada's capital markets.
The sovereign debt issues facing the U.S. and other major global markets could also lead investors to park their money in Canada, given the country's relatively stronger fiscal position.