Parity – But For Which Currencies?

So what does parity mean?  Put simply, it means that two currencies are worth the same.  Since exchange rates rise and fall on a minute by minute basis, a currency may technically only achieve parity with another for a short period of time.  The chances of one whole British pound being worth exactly one whole Euro are probably quite slim.  So for the purposes of this example, parity is taken to mean two currencies that are worth virtually the same when one is exchanged for another.

But while the pound is struggling not to reach the point of parity with the Euro, it isn’t the only currency that could find itself in this situation.  There is another currency pairing some thousands of miles away that may even beat it to it.

The pairing in question that you will see on your currency converter is the US dollar and the Canadian dollar.  This is good news for the Canadian dollar, but not so good for the US dollar, which is going through a prolonged period of weakness when up against the Canadian dollar, or loonie, as it is affectionately called.

This news story from the Financial Post website – indicates the situation at hand.  According to another report – this time from the Canadian website the Ottawa Citizen - the Canadian dollar could be worth the same as the US one by the time 2009 gives way to the New Year.

While the Canadian dollar has done well in recent weeks, it is only during the last few days that it has climbed within reach of this lofty goal.  Back on the 13th September it was on 0.9278 against the US dollar, and just a day later it had regressed to 0.9169.

There were pretty steady rises all in all throughout the remainder of the week though, and the week’s closing figure for the loonie was a respectable 0.9335.  Where would things head come the following week?

Well the signs weren’t all that good from the first day, as the exchange rate turned back in favor of the US dollar again.  By the end of that first day things were back to 0.9288.  The Canadian dollar hung on admirably though and crept up to 0.9321 by Thursday night.  With just a single day to go before the weekend, it looked to be another great week for the loonie.

But if you have ever heard of falling at the final hurdle, you’ll know that is what the loonie did here.  Everyone headed home with the US dollar pushing back and leaving the Canadian dollar claiming just 0.9148 at the week’s end.

The following week showed some real mettle from both currencies.  Every figure began either with the number 91 or 93 – and nothing in between.  The jumps, when they happened, were big ones and they went in both directions.  So as September gave way to October, it was anyone’s guess as to what would happen next.

That week ended on a rate of 0.9168 for the loonie, but it soon got back into the driving seat come Monday morning.  At the close of play it claimed 0.9313, and the following day it pushed that up to new heights by claiming 0.9408. 

We ended up with an almost unthinkable exchange rate by the end of the week, as the Canadian dollar put on a spurt of power and finished up with 0.9579 against the US dollar.

Parity was still a way off, but given the results that were still to come on the 12th and 13th October, it came as no real surprise that the news headlines mentioned above were about to be published.

By the end of the 12th the Canadian dollar had bagged a rate of 0.9683 – and it didn’t waste any time pushing that up over the 97.000 barrier either.  That occurred the next day, and as things stand at the moment the Canadian dollar is at 0.9709.  Not far to go to achieve parity after all.

So will it happen before 2010, as predicted by some?  It could well do, and on the evidence of the past few days, it could even happen as early as next week.