Carney Holding Down Loonie

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The Bank of Canada governor Mark Carney has received a lot of praise for his action on interest rates, but his best course of action had been making the loonie’s quick ascent disappear.

Thursday ended the year’s trading, and those who predicted that the currency would reach parity with the U.S. greenback by the end of 2009 have been forced to wait a little longer.

The Canadian dollar rose again, by 0.39 of a U.S. cent, on Thursday, however it still fell almost 0.05 cents apart of parity.

With Carney jumping into action, warning that he had no intention of moving off the low rates until mid 2010, and there were methods he had to cooling the currency, it allowed the loonie’s ascent stop, taking off 0.02 cents off the dollar’s value.

Analysts feel that Carney will be facing a bigger challenge, which is likely to start in the mid year, when he will have to seriously consider moving the central bank into a tightening mode and withdrawing extraordinary liquidity measures that has helped keep credit flowing during the worst of the recession.

The Bank of Canada’s actions will depend on the reasons for the loonie’s strength.

With the speculation being made, Carney might have to go beyond and employ tools he insists the central bank has that can help keep the loonie in check.

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