Canada's global currency star

ROMA LUCIW
Globe and Mail Update
November 2, 2007 at 4:42 PM EDT

http://finance.yahoo.com/currency/co...submit=Convert

The loonie pushed even further into record territory compared to the U.S. dollar on Friday, but with the euro tapping new highs and talk of parity in Australia, how is Canada's currency faring against others around the globe?
When measured against the greenback, the Canadian dollar has undoubtedly been this year's star performer on the world stage. The loonie has outperformed all its major peers, surging 25 per cent.
"Clearly, the Canadian dollar is on everyone's radar," said Michael Gregory, a senior economist at BMO Capital Markets. "But the big theme has been the weakness in the U.S. dollar. So it is a game of everyone is gaining against the U.S. dollar."
Brazil's real is in the No. 2 spot, rising 23 per cent against the U.S. dollar in 2007, according to Bloomberg data, followed by a 17 per cent rise in the Australian dollar and a 15 per cent rise in the Norwegian krone. The euro has gained 10 per cent, the British pound 6 per cent, the Swiss franc 5.5 per cent and the Japanese yen 3 per cent.
The Canadian currency has been on a tear, topping its 1957 modern-day high of $1.0614 on Wednesday, then sauntered to $1.0704 (U.S.) on Friday. The loonie may have soared 25 per cent this year against the greenback but has risen a smaller 13.5 per cent when measured against the euro, which is also forging new highs. At last check, the loonie was trading at 73.7 euro cents.
Although U.S. dollar weakness has been one of the driving forces in the global currency market, soaring oil, gold and metal prices have played a major role in boosting the so-called commodity currencies. Crude oil has been a tear, topping $96 a barrel (U.S.) this week on supply concerns, while gold topped $800 an ounce, pushing currency investors towards resource-rich countries such as Canada, Australia, New Zealand, Norway and South Africa.
Still, Mr. Gregory believes there is more to the Canadian dollar's 25 per cent runup than a weak U.S. dollar and high commodity prices. "I think it is more than just U.S. dollar weakness, which I think is accurately reflected in the price of the euro," he said. "If you parse out commodity prices, which are boosting the Australian and Norwegian currencies, you still find that the Canadian dollar has done better than expected."
Mr. Gregory said "speculative buying and momentum" are responsible for the remainder of the gains. "Those factors do not seem to be going away any time soon," he added.
Monetary policy is also playing its part in the global currency shakedown. The euro, for instance, is operating against a background of central bank tightening at the same time that the U.S. Federal Reserve is easing. Australia's central bank is also in tightening mode as is Norway's, moves that supportive their currencies.
So, are other countries fretting about the rapid movement in their national currencies?
The Australian central bank is expected to hike rates next week, leading a number of currency strategists to predict that the Aussie dollar is on track to hit par with the greenback within weeks or months.
David Powell, a currency analyst at Ideaglobal in New York, says that like Canadians, people living in the euro zone are concerned about their soaring currency. "The question hanging over their heads is whether the record high euro is going to curb global exports from Germany and the rest of the zone, rendering their economy much more fragile in the coming year."
With the U.S. central bank cutting interest rates at a time when other central banks are having to contemplate tightening, Mr. Powell does not expect that the euro is going to get a reprieve any time soon.
In the U.S., though, there is little concern about their sagging greenback, which has dropped 9 per cent so far this year when measured against the euro.
"Officially, they believe in a strong dollar policy. If the market wants the dollar to be weaker, then they think that is fine," he said, adding that the currency weakness is boosting exports at a time when the housing sector is collapsing.
So why does Canada use the U.S. dollar as its benchmark? Mr. Gregory attributes that to trade and capital flows.
"The bulk of Canadian trade is with the U.S. and the bulk of the international capital flows to and from Canada are with the U.S. so that exchange rate really dominates our thinking," he said. "For Canada, it is very much a U.S. dollar story."


What is the Canadian dollar worth in other global currencies?


1.23 Swiss francs
123 Japanese yen
0.51 of a British pound
11.43 Mexican pesos
7 South African rand
5.8 Norwegian kroner
1.55 Singapore dollars
1.15 Australian dollars
42 Indian rupees
26.3 Russian rubles

http://www.theglobeandmail.com/servl.../BNStory/Front

.

The US dollar is not so mighty anymore. I am slightly behind the times and in need of seriously getting with the program; why is the american dollar becoming so weak? What are the broad reasons behind it all?

Haha now when you go to foreing countries they are not going to ask for american dollars but canadian dollars muuaaahhhh we are taking over the world by doing nothing LOL

__________________

^
Strong economic indicators pushed the CAD over the top against all major currencies including the greenback. Good indicators on unemployment, participation rate, oil prices re: tar sands of Alberta, coupled with slumping US dollar strongly contributed to the CAD. Rising oil prices further puts the US into a deficit slump together with a weaker dollar than Canada which is resource rich and net exporter of oil. And as the articles states the interest rate differentials between central banks.

I can see the loonie being 1.25 at some point in the winter or earlier spring.

This is not good, I am going to be visiting a friend in Montreal this weekend. Wow, CAD is now worth more than USD.

That's a bit wishful thinking. Most analysts agree sell off will occur at the 1.10 resistence level and retrace back to parity with the USD simply due to economic ties between the 2 countries.

.

Yes, 'Monopoly' money ain't what it used to be. Ahh.. who could forget the yesteryears. It wasn't just a few years ago that the loonie traded as low as $1.50 to the greenback. Reversal of fortune?

.

China may dump greenback from its foreign currency reserves


ZHOU XIN AND EADIE CHEN
Reuters
November 7, 2007 at 7:37 AM EST


BEIJING — China delivered a one-two punch to the dollar as a top lawmaker suggested a bigger role for the euro in its $1.43-trillion (U.S.) hoard of foreign reserves and a central banker said the dollar is losing its global currency status.
The euro hit a record high above $1.47 following remarks on Wednesday by Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, China's parliament, pointing to diversification of the country's reserves.
“In terms of the structure of our foreign exchange reserves, we should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies,” Mr. Cheng told a financial forum.
“For example, in the current foreign reserves structure, I mean the bonds we bought, the euro is appreciating against the yuan while the U.S. dollar is depreciating against the yuan. So we should make a balance between the two,” Mr. Cheng said.
Mr. Cheng's position gives him influence in Beijing, where he holds a rank equivalent to vice premier. However, he does not have real authority over financial matters and has been known to speak on a range of subjects, from the stock market to foreign acquisitions, on which he does not control policy.
Questioned later by reporters, Mr. Cheng said: “I didn't mean we should buy more euros. What I mean is that we should take advantage of the strengthening euro to compensate for weakening currencies.” He did not elaborate.
China does not disclose the composition of its reserves, but Glenn Maguire, an economist with Societe Generale in Hong Kong, estimated that China holds 65-70 per cent of them in dollars and a much smaller share in euros.
In a note to clients, he said Mr. Cheng would most probably be familiar with, though not privy to, policy discussions on the exchange rate mechanism and the foreign exchange reserves.
“If China were indeed to balance its FX reserve holdings between the dollar and the euro, this would represent a massive selling of dollars and buying of euros,” Mr. Maguire wrote.
Xu Jian, vice head of the People's Bank of China's Communist Party school, twisted the knife by saying recent surges in gold and oil were a reflection of the dollar's loss of standing.
“The U.S dollar's global currency status is shaky and the creditworthiness of dollar assets is falling,” Mr. Xu, who said he was speaking in a personal capacity, told the same forum.
He said he expected the dollar to weaken further in 2008 under the impact of the gaping U.S. trade deficit. That could push the price of gold to $1,000 an ounce from a 28-year peak of $840 scaled on Wednesday, Mr. Xu said.
The dollar has weakened significantly against the euro in the past several weeks, following two interest rate cuts by the U.S. Federal Reserve and worries about the economic impact of the meltdown in the subprime mortgage market.
The yuan has risen nearly 9 per cent against the dollar since it was revalued by 2.1 per cent against the U.S. currency in July 2005 and unpegged to float within managed bands.
To the rising anger of many European politicians, the euro by contrast has risen 9.2 per cent against the yuan over that period.
Mr. Cheng said that China would not bow to foreign pressure to let the yuan rise much faster.
He cited the example of the 1985 Plaza Accord, which engineered a sharp rise in the yen. Mr. Cheng said this ushered in a decade of deflation in Japan, showing that the search for international currency compromises may bring unwanted results.
“Therefore, the exchange rate issue is a sovereign issue, and we must consider it mainly from our own point of view,” he said.
Cheng said Beijing needed to dampen international expectations that the yuan will keep rising, saying this mindset was more dangerous than a stronger yuan itself.



.