Wednesday October 22, 2008 10:37 a.m.
Recently the Bank of Canada quite sensibly cut its interest rate by a quarter of a percent. It also indicated that in the light of recessionary circumstances and the chaos in the equity markets it planned on possibly cutting rates further if necessary in the future. They might have cut the rate by 50 basis points but no matter the direction is sound and the analysis sensible. The reaction ? The manic depressive currency traders dumped the Canadian dollar and hopped on board the speeding freight train that somewhat paradoxically is the American dollar at the moment. Who knows how long this wild mood swing will last .But in the meantime there is no reason for Canadian dollar holders and users to panic. At an exchange rate of about 80 cents US the Canadian dollar is trading under its value by some 7 to 15 cents. This will make it much easier for our manufacturers who have survived the rise in the dollar to above parity to thrive in a difficult market in the US and eventually the dollar will creep or soar forward. Depressed commodity prices will probably be with us for a while but our now cheaper dollar will act as a useful hedge for the economy and its heartland manufacturing.On the other hand it is not impossible that the slump or correction in the dollar depending upon your perspective will be a short lived phenomenon once the carry trade and hedge fund adjustments have played themselves out. impossible to tell at the moment but stay tuned.
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