Analysts: Loonie to Fall

The Canadian Dollar continues to lose its luster. Falling natural resource prices and the credit crunch have combined to exact a devastating blow on the Canadian economy, causing it to actually contract in the most recent month for which data is available. Now, the Central Bank is predicting that the economy will expand by only 1% in 2008. Most economists expect that Canadian Monetary Policy will soon lag US policy, especially if the Fed raises interest rates to combat inflation. Based on these developments, the consensus is that the Canadian Loonie is significantly overvalued, and will lose some of its value over the next few years, falling to a more sustainable level against the US Dollar. Bloomberg News reports:

The loonie will slide to C$1.05 by the end of December, and to C$1.09 by the start of 2010, according to the median estimate of 31 strategists surveyed by Bloomberg.

Read More: Loonie Loses Currency Wings as Canada Hurt by U.S.

Analysts: Loonie to Fall

The Canadian Dollar continues to lose its luster. Falling natural resource prices and the credit crunch have combined to exact a devastating blow on the Canadian economy, causing it to actually contract in the most recent month for which data is available. Now, the Central Bank is predicting that the economy will expand by only 1% in 2008. Most economists expect that Canadian Monetary Policy will soon lag US policy, especially if the Fed raises interest rates to combat inflation. Based on these developments, the consensus is that the Canadian Loonie is significantly overvalued, and will lose some of its value over the next few years, falling to a more sustainable level against the US Dollar. Bloomberg News reports:

The loonie will slide to C$1.05 by the end of December, and to C$1.09 by the start of 2010, according to the median estimate of 31 strategists surveyed by Bloomberg.

Read More: Loonie Loses Currency Wings as Canada Hurt by U.S.

China Adjusts Forex Rules

As the Chinese Yuan has appreciated over the last three years, and even in the decade leading up to the sudden revaluation, a tremendous amount of speculative "hot money" poured into China. Periodically, the government and Central bank have attempted to stem some of these inflows by creating deliberately unfavorable conditions for foreigners to invest in China. Witness the unnaturally low interest rates and the

AUD: So Much for Parity

The parallels between the Australian Dollar and the Canadian Dollar are remarkable! Both currencies are backed by economies highly dependent on natural resources. Both countries’ Central Banks are considering rate cuts in response to slowing growth. Finally, both currencies have slipped well below parity with the US Dollar. Unlike the Canadian Loonie, the AUD had never quite breached the mythical 1:1 level with the USD. Furthermore, given the deteriorating economic picture in Australia, parity is off the table for a long time.

AUD: So Much for Parity

The parallels between the Australian Dollar and the Canadian Dollar are remarkable! Both currencies are backed by economies highly dependent on natural resources. Both countries’ Central Banks are considering rate cuts in response to slowing growth. Finally, both currencies have slipped well below parity with the US Dollar. Unlike the Canadian Loonie, the AUD had never quite breached the mythical 1:1 level with the USD. Furthermore, given the deteriorating economic picture in Australia, parity is off the table for a long time.

Bumpy Road Ahead for Canadian Dollar

2007 was a momentous year for the Canadian Loonie, which rose 17.5% and even reached parity against the US Dollar. 2008 has been somewhat less kind to the Loonie; it has been battered repeatedly from falling commodity prices and the global credit crunch. Actually, even before the price of oil peaked near $140, the link between the Canadian Dollar and natural resources had begun to break down. The rationale among investors had shifted such that expensive commodities were now seen as a drag on global economic growth, and hence, bad for Canada in the long-term. Using this logic, the currency should have received a reprieve from falling prices, but this was interpreted as bad for Canada in the short-term. In other words, a lose-lose situation. Perhaps, the Loonie climbed too high too fast, and a simple technical correction is in order. The Guardian reports:

The Canadian dollar has been stuck in a tight range since the end of last November. If the Canadian currency eventually closes below the low end of that range, it would be considered a sign of U.S. dollar bullishness and likely open the door to further losses.

Read More: Canadian dollar feels heat of economic slowdown

Bumpy Road Ahead for Canadian Dollar

2007 was a momentous year for the Canadian Loonie, which rose 17.5% and even reached parity against the US Dollar. 2008 has been somewhat less kind to the Loonie; it has been battered repeatedly from falling commodity prices and the global credit crunch. Actually, even before the price of oil peaked near $140, the link between the Canadian Dollar and natural resources had