Last week the Canadian dollar has become the second currency – after Australian dollar – achieving parity against the dollar, United States. The Loonie parity is not quite as strong as an Aussie, there is reason to believe that it will continue trading at this level for the short term.
It's not hard to understand what is driving the Loonie. the weak dollar.As THE FED begins further monetary easing (QE2) nervous that all these new dollars will be deployed as a speculative – rather than industrial investors. emerging markets currencies are especially popular with currencies, commodities, such as the Canadian dollar, not far behind.
According to the Bank of Canada Governor Mark Carney: "prospects for the Canadian dollar ...eventually reflect economic fundamentals. " While he threatened to intervene if violated the foreign exchange market "work" (i.e. If the Loonie climbs to unreasonable levels), past history and the tone of comments Carney assumes that the Bank of Canada to remain aloof from the length of the currency of war.
From where I sat, Canadian dollar (as in the case of New Zealand dollar, the subject of my previous post), you don't deserve to benefit from speculative wall of money that flows from the United States. The Canadian economy is projected to increase by only 1% in 2010, and after adjustment decrease in 2009, this is the same size as it was two years ago. Not to mention that the Canadian Government issued record debt and Herder economy through the recession.
Most worrying that Canada's trade deficit close to record highs and on an annual basis is now approaching $ 30 billion a year. Furthermore anecdotal history indicate that Canadians are involved in cross-border shopping and traveling abroad in large numbers to take advantage of relatively cheap prices. The Canadian dollar parity now already becoming enshrined those phen0omena: "we would not expect much improvement in the trade patterns in the next couple of quarters," said one economist.
There are two observations that can be made here.First of all, although Canada clearly natural resources economy booming commodity prices really do not help Canada in the same way that it helps Australia, for example.This is mainly because of Canada's principal market for the export of commodities is the United States, which remains weak in contrast to the booming economy of China and the great Asia provide expansive and growing market for Australia's natural resources.In addition, as evidenced by the growing trade deficit, commodity exports are offset by increases in import: "Economists at the Bank of Montreal, and financing Desjardins say weak trade will share three percentage points of GDP in the third quarter.
The second observation is that currency markets are self-correcting tug, and this is particularly true for Canada as the Canadian Loonie climbs, exports become less competitive and consumers (sometimes physically!) start importing more. at some point then Loonie will reverse the decline, but the trade deficit will decline.
However, if you Drill deeper into the rooms, you can see that Canada has a significant trade surplus with the United States, which means that the Canadian dollar is probably room for further growth (or dollar has room to fall further), with bilateral trade deficit would be even close to the market on the basis of the trade-weighted (possibly against the euro), the Loonie has several sources of fixed assets for what it's worth, CIBC World markets from the analysts seem to agree: they see the Loonie is reduced by more than 5% over the next six months as noise on the QE2 gradually disappears and the data shows that only a fraction of new print dollars found their way to Canada.
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