Where's the loonie going?

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One day it's up, the other day it's down... Is there someone in control of this country currency? I understand that since the credit crunch a lot of changes all around the world with the currency, but I unfortunately can’t say I’m proud of mine.

I think that we should be proud that the dollar has strengthened around 17 percent this year. For my part, it really helped me since I've been travelling and I have more money, but the Bank of Canada doesn't think the same.

The bank literally cut the enthusiasm of everyone that was thinking that strong Canadian growth would bring higher interest rates. They warned the population saying that the dollar’s rapid rise has sapped Canada’s growth outlook and reaffirmed an intention to kept its key interest rate at a quarter of a percentage point through next June, which make the loonie plunged again last Tuesday. It seems that only speculations can decide whether our dollar will rise or go down.

Now where should it go? Any further? Probably not since the Bank of Canada have the power to act on our interest rate as they want which influences the profit speculator get from holding Canadian dollar assets. We all know that if an investor confidence is low, Canada will get lower inflows of money whether when its high, Canada tends to get higher inflows of money because our economy benefits when global growth is strong (probably because the price of our oil is higher as well as our industrial metals).

So right now, Canada’s dollar is high because the oil has risen which makes commodity prices rising as well. Negative or positive? I think this will be quite positive for Canadians like me since our money will worth more worldwide but when I think about it, I agree that this might have bad consequences for exporters and finally at the end, our economy which will make our dollar probably fall again... Then, what the country should do?

According to the finance minister Jim Flaherty, the main obstacle to a robust recovery of our economy remains the weakness of U.S. demand which will more than fully offset recent signs of economic growth.

I read different article this week about the Canadian dollar since I realised that almost everyday I had had a different rate when I was shopping in England on my credit card.

I really liked the article by the Canadian press. First of all, the heading was quite attractive Soaring loonie, low growth won't change plans for no taxes hikes: Flaherty. I thought it shows how finance minister was in accordance with the Bank of Canada. I can say that the article was quite objective saying the facts and both the goods and bad sides of the rise of the dollar. Moreover, I liked that the author highlighted the fact that Canada was not like Australia and because our main trading partner is US, we have to be careful since their economy is going through a very difficult time.

As for Bloomberg article, it was straight to the point as always. It was stating the main points of what was going on with our loonie. I liked it since it was regarding the effect on the business side more than the Bank of Canada interest rates. Finally, as always, Bloomberg showed numbers which make the articles more specific.

Finally, the Globe and Mail helped me understand what we should look at for the monetary policy report and also understanding what was going on with our currency. The headline was clear Bank of Canada: five things to watch for and the article clearly explain to the reader what was the Canadian dollar projection, how much exports were expected to decline, how come the bank expected 3 per cent growth next year, etc. This article was clearly made for anybody (like me) who didn't know that much about finance and wanted to learn more. I thought it was the easiest to read and the more efficient.

After all, I don't know if the Canadian dollar will ever stabilised since we are quite dependent of the US, but I hope that the government will help us instead of putting barrier. Maybe we should switch our major trading partners to another country?

Sources:

Bloomberg:

1) http://www.bloomberg.com/apps/news?pid=20601082&sid=aFzW.jzWI74Q#

2) http://www.bloomberg.com/apps/news?pid=20601082&sid=a4KFj5CJczBM

Globe and Mail:

1) http://www.theglobeandmail.com/report-on-business/crash-and-recovery/new-front-in-war-on-strong-canadian-dollar/article1331354/

2) http://www.theglobeandmail.com/report-on-business/bank-of-canada-five-things-to-watch-for/article1333607/

Canadian Press: http://www.google.com/hostednews/canadianpress/article/ALeqM5guLHj7dqpUCMEhHME0xGHuSrIhuA

Wall Street Journal: http://online.wsj.com/article/BT-CO-20091022-700960.html?mod=rss_Currencies