Posted on 11/07/2007 8:24:29 AM PST by SubGeniusX
TORONTO - How high will the loonie go?
The Canadian dollar's meteoric rise accelerated this week, rising two cents in less than 24 hours. The loonie broke through the US$1.10 barrier in overseas trading Wednesday, initially hitting the 110.02 cents US mark. It dropped back down to 109.6 cents US, before taking off again and landing well above US$1.10. This comes on the heels of Tuesday's rise of 1.34 cents US and modern-era record close of 108.52 cents US.
Analysts say it doesn't appear that the loonie will be returning to earth anytime soon.
The Canadian dollar is regarded as a resource-dependent currency and analysts credit the loonie's latest tear can be linked to the huge jump in oil prices, which soared to a new trading record above $98 US a barrel Wednesday overseas.
Wednesday's rise in the December contract comes amid expectations of declining U.S. supplies and following news of an attack on a Yemeni oil pipeline.
Analysts also say surging gold prices and solid returns for other commodities, particularly wheat, are helping boost the loonie's value - as is weakness in the US dollar.
"I'd like to say we're nearing the end of the run, but I can't say that confidently, " said BMO Capital Markets deputy chief economist Douglas Porter.
He calls the loonie's rise "nothing short of incredible."
But Tuesday in a speech in New York, Bank of Canada senior deputy governor Paul Jenkins warned that there is a downside.
Jenkins said despite high commodity prices and solid domestic demand, "the magnitude of the (loonie's) recent appreciation appears to be stronger than historical experience would have suggested."
He said the loonie's surge is even stronger than the central bank predicted just three weeks ago, and as such, the Canadian economy is at greater risk of being damaged.
"The combined effect of a weaker U.S. outlook and a higher assumed level for the Canadian dollar implies that net exports will exert a significant drag on the Canadian economy," Jenkins said.
The Canadian dollar reached parity with it's U.S. counterpart in September for the first time in a generation.
At that time, some foreign exchange analysts predicted the loonie could reach as high as US$1.05 if weakness in the American economy persisted.
Actually, the higher the Canuck buck, the more goods they buy from America...
I just picked up a nice bonus due to the influx of business because the US dollar is low...
Yes it is! Free-floating currencies are an abomination! How can we ever withstand the blow to our collective ego!
Bernake’s two rate cuts didn’t help.
Exactly, a cheap dollar means our exports are now less expensive to purchase.
It does seem strange to see the Dollar worth less money then the Canadian Dollar though.
What is new about this. It was like this in the early 70’s. reminds me of when I was stationed in Germany. The Mark was 4:1. No one there looked starved, the stores were booming with shoppers and there was pleanty of food in the markets. Life goes on.
too bad the hollywood writers went on strike, there are many jokes to be had of this
“It does seem strange to see the Dollar worth less money then the Canadian Dollar though.”
Not really, I’ve liven here in the USA since March of 2000... the US dollar has been eroding for a while now...
Just glad I paid off our Canadian Student loans last year, otherwise I’d been in deep poop now!
Doesn’t common sense tell us it’s not quite that simple? If it was, why has Bush promoted the so-called strong dollar policy? Why don’t we just push the dollar down another 50%? The answer is that while what you say is true, there are also negatives to a falling dollar. For example, China & Japan have about $2 trillion of USD denominated reserves, held mainly in US Treasuries. Do we really think they are going to sit there and watch the real value of their holdings decline w/o taking any kind of action? As they diversify out of USDs, what do you think will happen to interest rates? What’s to stop a downward spiral where diversification out of the USD pushes the USD down further causeing further diversification out of the dollar?
Indeed! Good thing to as you would hve lost .10 cents on every dollar..lol!
The only thing that can stop a dramatic decline is either Budgetary Discipline in DC...(BWAHAAGGAA..cough cough..)
Or Banks and the Treasury or Fed can buy up dollars propping up support for it, a weak dollar is double edged sword indeed, Japan and China can now buy US assets for half price now.
Conspiracy Theory #1:
The gov’t is deliberately allowing the dollar to fall. Once it gets below the Peso then the President will declare it worthless and we’ll switch to the Amero.
Discuss.
Unfortunate for those of us that are in jobs that do not produce anything.
That’s an advantage; there are disadvantages too. Ultimately a weak dollar is not good.
Strange conspriracy kind of theory, but may not be too far from the big plan. Maybe that is the untold story of immigration reform. Get the dollar so low Mexicans will WANT to move back to Mexico for higher wages.
Had a purchasing manager from a large Canadian firm call me last week - wanted to know how fast he could resource almost all of his non-US purchases south of the border. Hurt my ego terribly.
You’ll get over it, I hope. :)
What difference does that make?
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