The Financial Post reports in its Tuesday edition that differences in fiscal policy between the Bank of Canada and the U.S. Federal Reserve could weigh on the loonie. The Post's Ben Cousins writes that CIBC economist Avery Shenfeld believes, however, that a bigger threat to the Canadian dollar may be coming from Europe. On Friday, Mr. Shenfeld suggested that currency investors should keep an eye on the euro. He said while differences in monetary policy can impact the Canadian dollar, its broader movements against the greenback are often influenced by whether the U.S. dollar is generally weakening or strengthening against a basket of major currencies. Mr. Shenfeld says in a note, "In the past two decades, there's been an 85 per cent correlation between monthly average levels for the euro's exchange rate versus the USD and the Canadian dollar s valuation against the greenback." Mr. Shenfeld says if as a result of belt tightening, the European Central Bank is forced to ease more than expected and the Fed slows its own easing as the U.S. economy stays strong, the greenback could renew its run and the loonie could be vulnerable. He says eyeing "euro zone members is important "for those with Canadian dollar risks to hedge."
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