The price of oil has spiked to $65 a barrel. Prices at the pump in Montréal hit 1.19 per litre. Yesterday prior to the spike I filled up at 1.09. This remarkable yo yo spot market is having its impact upon the Canadian dollar. Canada is perceived correctly as a petroleum rich country. Our currency is increasingly viewed by traders as a petro currency particularly as the American dollar weakens. This morning the dollar was trading at over 90 cents US. In addition the latest monthly growth figures for the economy showed growth running at a multiple of the the expected numbers .In addition wholesale prices for factory output was also rising more swiftly than expected thereby convincing traders that the Bank will be reluctant to cut interest rates. So there is no surprise that the Canadian dollar is so strong.
Recall however only several years ago the dollar was at under 65 cents US and many of our top analysts and economists were foolishly arguing that we abandon the currency and adopt the US dollar or a new blended currency the Amero.
I ,at the time, along with the Governor of the Bank and a few other economists argued in favour of keeping the currency and predicted accurately in print in an op ed published in the Montréal Gazette that the dollar would eventually rebound and strengthen.( "Don`t drop our dollar :Abandoning Canadian currency would further erode the country`s sovereignty, Montréal Gazette, Feb.2, 2002"
Predicting the short term movement of the Canadian dollar is a bit of a mug`s game because of the huge uncertainty and casino quality of the international currency exchanges.
Nevertheless, there does seem to be some evidence that the strong Canadian exchange rate is to be expected for the time being so long as petroleum prices stay as high as they do.
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