Re: [Pen-l] Why is Canadian dollar falling versus U.S. dollar?

[Jim Devine <jdevine03@xxxxxxxxx>]

Bill Lear wrote:
> The NY Times has a story today "As Dollars Pile Up, Uneasy Traders
> Lower the Currency's Value" by Jack Healy
>
> http://www.nytimes.com/2009/05/23/business/economy/23dollar.html?hpw
>
> It says the U.S. dollar is at "its lowest point in five months this
> week", and a chart accompanying the story, the dollar is compared to
> "the euro, yen, British pound, Canadian dollar, Swedish krona and
> Swiss franc."  The source of this is listed as "Bloomberg".
>
> But in a May 13th story on the Bloomberg site, "Canadian Dollar
> Weakens as U.S. Retail Sales Drop, Stocks Fall".
>
> So, what is the general picture here, and is the behavior of the
> Canadian dollar qualitatively different than the other currencies
> versus the U.S. dollar? ...
>
> Any thoughts on the causes of this?  Crude oil prices?  Bank of Canada
> interest rate cut?  Others?

The "Bloomberg" data probably come from the Federal Reserve; it's
sound like it's the trade-weighted major currencies exchange rate.
It's available at
http://research.stlouisfed.org/fred2/series/DTWEXM?cid=94. That page
gives you options about which period you want to see and the like.

I don't know why the Canadian dollar is fluctuating the way it does,
but I know that it depends what period you're talking about. The graph
at http://research.stlouisfed.org/fred2/series/DEXCAUS?cid=94 shows
the CAN$ generally rising during the current US recession, but
generally falling since 2001 or so (up to the recession's start or to
the present). The pattern is generally the same for the trade-weighted
average.

Looking at the value of CAN$ relative to the entire "US major trading
partners" exchange rate basket (which includes the CAN$), the CAN$
generally rose from the beginning of the early 2000s until 2002-4.
Then it generally fell until the beginning of the US recession, with a
big uptick during late 2006/early 2007. Since the US recession began,
the CAN$ has been rising relative to the rest of the US major trading
partners currency basket.

For short time periods, usually it's speculation that plays the main
role. For longer periods, it's relative interest rates and such things
as the perceived relative creditworthiness of different countries. For
even longer periods, it's relative inflation rates. I'd say that
year-to-year changes of exchange rates are most important in terms of
affecting a big economy, while the business press tends to emphasize
very short-term fluctuations. It's like they have ADHD or something.
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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