PurrsianPussyKat
01-03-2007, 10:24 PM
Canadian dollar steamrollered by U.S. dollar
TORONTO (CP) - The Canadian dollar fell to a nine-month low against the U.S. dollar Wednesday and analysts say the loonie likely has further down to go as commodity prices weaken and traders favour the U.S. currency.
The loonie was worth 85.42 cents US early in the afternoon, down 0.52 of a cent on the day in an ongoing decline from its 28-year high in June of just over 91 cents.
It was still at 89 cents at the end of October, slid to 87 1/2 cents by the end of November and closed 2006 at 85.81 cents.
In the near term it could be headed below 85 cents, said Katherine Beattie, currency technical analyst at Action Economics.
She noted that better than expected U.S. manufacturing data Wednesday morning generated a strong rally in the American dollar.
"That just shows the state of the market: the market wants to buy the U.S. dollar," Beattie said, suggesting the loonie could be at 84.75 cents within a week.
"The resources are down and it's having an impact on the dollar," commented Chyanne Fyckes, chief investment manager at Stone Asset Management.
Crude oil fell $2.41 to US$58.64 per barrel early in the afternoon in New York and natural gas was down 13.4 cents at US$6.165 per million British thermal units, while copper sagged 20 cents to US$2.67 a pound and gold faded $7.40 to US$630.60 an ounce.
"It's all driven on resources, it's all a vicious cycle," Fyckes said. "As long as the resources keep going down, the dollar will go down."
Don Drummond, chief economist at TD Bank, observed that the Canada-U.S. exchange rate closely tracks commodity prices.
"There used to be a time when it just traded with non-energy commodity prices but lately it's been trading very closely with energy commodity prices, in particular oil prices - they're still, from a historical level, pretty high, but they're a long way from the $78 peak they hit last spring," Drummond said.
"We've seen most of the commodity prices pull off, it's not just energy prices. A lot of the base metals, copper in particular, have pulled off quite a bit, and the expectation is certainly that there's going to be a further pullback on the base-metal prices, and that'll take some of the shine off the Canadian dollar."
Drummond added that he doubts the currency will weaken much further, and expects it to revive in the second half of the year.
Steve Butler, director of foreign-exchange trading at Scotia Capital, pointed out that in the big picture the Canadian dollar didn't have such a bad day.
"Certainly against the U.S. dollar it's much weaker, but against a lot of the currencies in Europe it's having a good day," Butler said. "And in the last few months Canada's been just weakening against almost every currency."
The loonie was up 0.24 of a penny against the British pound at 43.79 pence - down from 50.5 pence in early March and 47 in late October. It was worth 64.87 euro cents, up 0.16 of a cent on the day against the European currency but down from 74 cents in late February and over 70 cents in October.
Much of the currency's recent decline has been "flow-driven" amid "an exodus of investors out of Canada," Butler said. "I still think we've got potential to see Canada weaken off."
Since Oct. 31, when federal Finance Minister Jim Flaherty announced drastic changes in tax policy toward income trusts, "Canada's been on kind of a downward spiral," Butler observed.
"Certainly the commodities are not helping - oil's down quite a bit, natural gas has really been suffering the last couple of weeks with this warmer weather."
TD's Drummond was less inclined to hang the loonie's performance on Flaherty's decision to tax trusts, noting that late October also coincided with the downturn in commodity prices.
"Certainly in theory, and I have no doubt that the theory spilled over to practice, the income trust announcement should have weakened the Canadian dollar, because particularly the energy trusts were being held very heavily by foreign investors," Drummond said.
"If they were getting out of those investments there would have been a net outflow of capital."
Nonetheless, he said, "historically you can pretty accurately predict the Canadian dollar by tracking what's going on in commodity prices."
Source : http://money.canoe.ca/News/Economy/2007/01/03/3154505-cp.html
TORONTO (CP) - The Canadian dollar fell to a nine-month low against the U.S. dollar Wednesday and analysts say the loonie likely has further down to go as commodity prices weaken and traders favour the U.S. currency.
The loonie was worth 85.42 cents US early in the afternoon, down 0.52 of a cent on the day in an ongoing decline from its 28-year high in June of just over 91 cents.
It was still at 89 cents at the end of October, slid to 87 1/2 cents by the end of November and closed 2006 at 85.81 cents.
In the near term it could be headed below 85 cents, said Katherine Beattie, currency technical analyst at Action Economics.
She noted that better than expected U.S. manufacturing data Wednesday morning generated a strong rally in the American dollar.
"That just shows the state of the market: the market wants to buy the U.S. dollar," Beattie said, suggesting the loonie could be at 84.75 cents within a week.
"The resources are down and it's having an impact on the dollar," commented Chyanne Fyckes, chief investment manager at Stone Asset Management.
Crude oil fell $2.41 to US$58.64 per barrel early in the afternoon in New York and natural gas was down 13.4 cents at US$6.165 per million British thermal units, while copper sagged 20 cents to US$2.67 a pound and gold faded $7.40 to US$630.60 an ounce.
"It's all driven on resources, it's all a vicious cycle," Fyckes said. "As long as the resources keep going down, the dollar will go down."
Don Drummond, chief economist at TD Bank, observed that the Canada-U.S. exchange rate closely tracks commodity prices.
"There used to be a time when it just traded with non-energy commodity prices but lately it's been trading very closely with energy commodity prices, in particular oil prices - they're still, from a historical level, pretty high, but they're a long way from the $78 peak they hit last spring," Drummond said.
"We've seen most of the commodity prices pull off, it's not just energy prices. A lot of the base metals, copper in particular, have pulled off quite a bit, and the expectation is certainly that there's going to be a further pullback on the base-metal prices, and that'll take some of the shine off the Canadian dollar."
Drummond added that he doubts the currency will weaken much further, and expects it to revive in the second half of the year.
Steve Butler, director of foreign-exchange trading at Scotia Capital, pointed out that in the big picture the Canadian dollar didn't have such a bad day.
"Certainly against the U.S. dollar it's much weaker, but against a lot of the currencies in Europe it's having a good day," Butler said. "And in the last few months Canada's been just weakening against almost every currency."
The loonie was up 0.24 of a penny against the British pound at 43.79 pence - down from 50.5 pence in early March and 47 in late October. It was worth 64.87 euro cents, up 0.16 of a cent on the day against the European currency but down from 74 cents in late February and over 70 cents in October.
Much of the currency's recent decline has been "flow-driven" amid "an exodus of investors out of Canada," Butler said. "I still think we've got potential to see Canada weaken off."
Since Oct. 31, when federal Finance Minister Jim Flaherty announced drastic changes in tax policy toward income trusts, "Canada's been on kind of a downward spiral," Butler observed.
"Certainly the commodities are not helping - oil's down quite a bit, natural gas has really been suffering the last couple of weeks with this warmer weather."
TD's Drummond was less inclined to hang the loonie's performance on Flaherty's decision to tax trusts, noting that late October also coincided with the downturn in commodity prices.
"Certainly in theory, and I have no doubt that the theory spilled over to practice, the income trust announcement should have weakened the Canadian dollar, because particularly the energy trusts were being held very heavily by foreign investors," Drummond said.
"If they were getting out of those investments there would have been a net outflow of capital."
Nonetheless, he said, "historically you can pretty accurately predict the Canadian dollar by tracking what's going on in commodity prices."
Source : http://money.canoe.ca/News/Economy/2007/01/03/3154505-cp.html