U.S.-Canada headed toward parity?

Higher crude oil prices, hefty merger and acquisition (M&A) activity and positive growth fundamentals helped push the Canadian dollar to 30-year highs vs. the U.S. dollar in late May (Figure 1). The economic growth picture has perked up in the Great White North and analysts say talk of parity between the “loonie” and the U.S. dollar is likely to heat up in the weeks ahead.

The daily chart of the U.S. dollar/ Canadian dollar pair (USD/CAD) shows a virtual freefall in price as the pair has slipped from above $1.18 in February to below $1.07 on June 1 (Figure 2). A number of factors have supported the recent surge in Canadian dollar strength vs. the U.S. dollar, but the key question is, can this trend continue?