Saturday, October 6, 2007

Canadian Currency beats US Currency!

It was predicted by many that the Canadian currency would reach par with the US currency by the end of the year. As of October 5th, one CAD is worth 1.01838 USD. Today.

Damn. I feel proud. But this also means I have to invest in US exporters that mostly have domestic inputs.

OTTAWA - The Canadian dollar defied gravity Friday, rising above US$1.02 at one point, as the high-flying currency got additional lift from a report showing Canada's unemployment rate fell last month to the lowest level in 33 years.

It was a day of astonishing news for the Canadian economy, which had been expected to start feeling the pain from the summer subprime mortgage crisis in the United States that many thought would send shock waves rippling into in this country.

Statistics Canada reported early Friday that the jobless rate had tumbled to 5.9 per cent in September and that the economy churned out an additional 51,100 new jobs during the month over August. link

However, there's a little bit more to it. Sure it means TD can now buy an American bank (Commerce Bancorp), and try to move into the US market. But economists say the loonie's purchasing power is really only equal to only about US84¢ even though it's trading at a 31-year high of about US$1.02. The reason is:

"First, the price level is higher in Canada," it said, noting that a Canadian dollar cannot buy as much in real goods and services in Canada as a U.S. dollar can in the United States.

"Something that might cost $10 Cdn here, might cost US$8 in the U.S.," Mr. Orr said, explaining in an interview that is largely because the U.S. market is more competitive. link

So what does that mean in terms of macroeconomics and forex trading opportunities? I have to think about that tonight after the party.

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