Economic downturn in Canada May 23/08
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The Canadian dollar has broken out of parity with the U.S. dollar – no big surprise there – thanks to the lunacy surrounding oil prices. Canada is a net exporter of oil – so, it only makes sense that the loonie would invariably catch the speculative fever that’s gripping that market. However, I still feel that the Canadian currency is more closely linked to the prospects for the U.S. economy than oil.
I also think that we are witnessing just another bubble – this time oil being the beneficiary of the dumb money speculators, who must be running out of things to gamble on. First, they drove the stock market thought the roof (only to collapse), and then they did it to housing. I’m surprised any of them still have any money left. I guess we’ll eventually have another tulip craze just to satisfy their appetite for risk.
High oil prices are a drag on the global economy. Economies like Canada’s are very much exposed to the potential for further deterioration, and that factor alone will invariably weigh heavily on the loonie. I don’t honestly think smart money traders believe high oil prices are here to stay.
High oil prices are exacerbating the problem already caused by the faltering housing market in the U.S. and the poor outlook for jobs. Virtually every sector in Canada has been hit really hard by the economic downturn. After all, Canada is the tail on the American dog, and is very much influenced by what happens south of the 49.
This commentary is brought to you Friday, May 23/08 by Peter R. Bain at www.forexmentor.com where you will find the forex strategies used by the Big Dogs.
–Peter
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