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.
We don’t get bonuses.
A year ago people here would have thought you were making a joke or were a moron. Now.....
You need an “easy” button on your computer..../s
And here is where it gets ugly, a credit problem, so if the Feds create more currency to cover the credit market, the dollar will fall even farther, if the Fed does not, Banks and Mortgage and Insurance companies will collapse.
I know. Tells ya how bad things have gotten.
And not a one of them from that group would be worth hearing. If they were really funny, they wouldn't need laugh tracks.
As long as an individual is a net debtor and has no hard savings to inflate away, presumably this is not totally bad...
“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”
For a move this big in the dollar, they (china at least) certainly already are taking steps to reduce exposure to some degree.
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