Saturday, June 10, 2006
soaring Canadian dollar?
What's behind the soaring Canadian dollar?
The Canadian dollar is constantly being measured against its U.S. counterpart because Canada and the U.S. are neighbours and form the world's largest trading partnership.
The loonie's been flying in large part because the U.S. economy has been struggling to get off the ground. Washington is facing budget and trade deficits that have never been higher. In 2005, the U.S. bought $723.6 billion more in foreign goods and services than it sold, registering yet another record annual trade deficit.
To pay for those imports – including huge amounts of oil, gas, cars and car parts, lumber and numerous other products from Canada – U.S. consumers in effect have to buy them with foreign currencies. To do that, they have to sell U.S. dollars in international money markets. As in any market, the unending supply has pushed the price of the greenback down, as measured in other currencies.
For several years, American sales of U.S. dollars didn't have much effect on the price of the Canadian dollar, but that started to change in 2003. The greenback fell 22 per cent against the loonie during the year – and fell almost exactly the same amount against the euro.
The Canadian dollar is constantly being measured against its U.S. counterpart because Canada and the U.S. are neighbours and form the world's largest trading partnership.
The loonie's been flying in large part because the U.S. economy has been struggling to get off the ground. Washington is facing budget and trade deficits that have never been higher. In 2005, the U.S. bought $723.6 billion more in foreign goods and services than it sold, registering yet another record annual trade deficit.
To pay for those imports – including huge amounts of oil, gas, cars and car parts, lumber and numerous other products from Canada – U.S. consumers in effect have to buy them with foreign currencies. To do that, they have to sell U.S. dollars in international money markets. As in any market, the unending supply has pushed the price of the greenback down, as measured in other currencies.
For several years, American sales of U.S. dollars didn't have much effect on the price of the Canadian dollar, but that started to change in 2003. The greenback fell 22 per cent against the loonie during the year – and fell almost exactly the same amount against the euro.
# posted by NDR @ 8:52 AM 
