Loonie Up to Two-Year High against Euro

By TraderVox.com

Tradervox.com (Dublin) – The Canadian dollar has strengthened to two-year high after the European Central Bank decided to cut interest rates and lowered deposit rate to zero. The loonie also increased against the US dollar as risk appetite gripped the market despite positive report from ADP Nonfarm payrolls showed an unexpected increase in the month of June. Other countries that changed their monetary policy this week include China and UK. Decisions by central banks to reduce interest rates or add stimulus come as a global coordinated effort to increase credit in the market as leaders struggle to keep global economy from recession.

According to Camilla Sutton, who is the Chief Currency Strategist at Bank of Nova Scotia in Toronto said that the such a move shows the commitment of central bankers around the world to protect the financial market. He noted that this is a positive measure which will support growth and support commodity related currencies such as the New Zealand, Australia, and Canada dollars. The Canadian dollar also increased as the one-month Implied Volatility for the loonie against the 17-nation currency dropped to 7.92 percent from June 6 reading of 9.53 percent. Implied Volatility is quoted by traders when setting option prices; it signals the expected pace of the currency change.

The Canadian dollar gained by one percent against the 17-nation currency to exchange at C$1.2569 per euro at the close of trading in Toronto. This is the strongest it has been against the euro since June 2010. The loonie was trading at C$1.0142 against the US dollar after it had reached its strongest level since May 16.

According to Ed Devlin of Pacific Investment Management Co, economists are not long on Canadian market as the interest rates in the country are not favorable. He said this after the ECB and Chinese central bank decided to lower their interest rates in what has been termed as global coordination in trying to prevent deterioration of the world economy.

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