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Houston, we have a problem here. “Dodge sounds alarm on (Canadian) dollar’s surge.” That was this morning’s headline. Who could have guessed? Why does it take these guys so long to figure it out? Dodge is the Governor of the Bank of Canada. He says the Canadian dollar has soared to unreasonable levels, claiming it has gone too far too fast. Go figure. What was his first clue? He asserts that the loonie’s rapid rise is not supported by domestic factors. Mr. Dodge notes that Canada’s terms of trade have improved a little over the past three months, but not a lot. The Bank of Canada assumes 98 cents U.S. to be the level that is more justified by Canada’s trade performance.

Even the Finance Minister Jim Flaherty is arguing that Canada is bearing more than its fair share of the appreciation of world currencies against the U.S. dollar. Yeah, the Canadian economy is strong – but, not that strong. There’s a lot of hot air in the loonie balloon right now. The loonie’s appreciation can be traced to the world’s love affair with Canada’s oil, gas, grains and minerals.

The European Union has also expressed deep concern about the appreciation of the euro against the U.S. dollar. The finance ministers and central bankers, who attended the IMF and Group of Seven meetings this past weekend, did not come up with any answers. So, why did they meet in the first place? There is concern amongst analysts that the U.S. dollar may continue to depreciate, given the state of the housing mess south of the 49.

This news is brought to you by www.forexmentor.com (Source: Globe and Mail – Heather Scoffield, Oct. 22/07)

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