"Loonie tumbles below 80 cents US
http://www.bnn.ca/news/4290.html
John Partridge, The Globe and Mail
October 22, 2008
The U.S. dollar continued to flatten the loonie and every other significant currency except the Japanese yen early Wednesday, as hedge funds and other punters continued to unwind foreign investments and buy greenbacks as a prelude to repatriating the proceeds.
As Asian and European equity markets continued tanking, the Canadian dollar plunged as far as 79.71 cents US, down 2.68 cents from Tuesday's official Bank of Canada close and 4.06 cents from Monday.
This was also another in a series of recent three-year lows for the loonie, which just last November hit an all-time high of $1.10 US.
"This market is an absolute freight train, and there's no standing in the way of it," said Steven Butler, director of foreign exchange trading at Scotia Capital Markets in Toronto. "Canada was one of the worst performers overnight."
At 79.71 cents, it cost $1.2546 Cdn to buy $1 US compared with $1.1937 Cdn at Monday's close – and one British currency specialist said he thinks the greenback could strengthen to the point it is worth $1.30 within as little as a week.
"Given that in the last three weeks we've gone from about $1.05 to $1.25, it may be just a matter of a week or so until we see it moving into that kind of area," Ian Stannard, a currency strategist at BNP Paribas in London, said in a telephone interview.
The loonie's continued plunge was partly fuelled by the Bank of Canada's move yesterday to chop its benchmark interest rate by another quarter of a percentage point and strong signals it gave that more cuts are in store, making Canadian-dollar investments less attractive to currency buyers.
As well, the prices of oil and gold and other commodities, key drivers of the loonie's surge in recent years, fell again Wednesday amid more signs of a global economic slowdown.
But as has been the case for much of the past couple of weeks, the real story was more to do with U.S.-dollar strength rather than Canadian-dollar weakness.
"U.S. investors had been heavily invested in overseas and emerging markets," Stannard said. "But we're now seeing financial market tensions picking up in central and eastern Europe, where liquidity issues are arising . . . and that's providing support for the U.S. dollar right now."
During the global boom, there was plenty of "cheap U.S. liquidity," and that was used to fund positions in higher-risk, higher-yielding assets in emerging markets in Europe and elsewhere, he said.
Now, however, as funds' appetite for risk has vapourized, the process is being reversed.
"People are being forced out of these positions and have to buy U.S. dollars – that's why we're seeing such demand," he said.
The euro, meanwhile, is under pressure because the problems in emerging central and eastern European markets "are right in its backyard."
The European currency fell as far as $1.2743 overnight, its first break below $1.28 in nearly two years and down nearly 3.2 cents from Tuesday's close.
Scotia Capital's Butler said that investors are also hoarding U.S. dollars.
"Lending is loosening up, but they still want to make sure they have lots of dollar liquidity – for redemptions if they're mutual funds or hedge funds," he said.
One small saving grace for the loonie, is that it has performed better against the greenback than the Australian dollar, another resources-driven currency.
"Compared to the Aussie, we're not doing too badly," Butler said. "It's down about 20 percent in the last month and CAD is down about 17 percent," he said. "But, from the peak, the Aussie is down about 30 percent and CAD is down only about 20 percent."
Julian Jessop, chief international economist at Capital Economics in London, cited several other reasons for the greenback's strength, and said each of them also is "consistent" with the yen's strength.
"The most important is the growing recognition that, even though the U.S. may have led the way, the rest of the world is now heading for recession, too," he said in a note to clients Wednesday. Japan is in a better position, however, because it has avoided "imbalances" in household savings and government deficits that are plaguing Britain, for example. As a result, the Asian nation "should be among the first to recover as the global inflation shock fades," he said.
Echoing other economists and currency strategists in recent weeks, Jessop also said the U.S. dollar has actually become a safe haven.
"Even though the global crisis has been triggered by problems in the U.S. sub-prime mortgage market, U.S. policy-makers seem better able to deal with the economic fallout than their counterparts elsewhere," he said. "In particular, the [Federal Reserve Board's] dual mandate has allowed it to cut interest rates aggressively."
As well, Jessop said, the collapse in commodity prices, which are usually denominated in U.S. dollars, is "feeding back into a stronger dollar, and vice versa."
The net result of the greenback's strength is that he has revised a number of his key forecasts.
He is now betting that the euro, for instance, will fall to $1.20 US from its current level by the middle of next year, rather than to $1.25 as he previously forecast. He has cut his target for Brent crude oil – currently about $67 a barrel – for the same period to just $50 a barrel from $70, and now sees gold at $550 an ounce rather than $700."
Boy Charlie... I am glad I was not a betting man... on the loonie!
I couldn't see how it wouldn't go to 1.20 OVER... not UNDER the US$!
http://www.bnn.ca/news/4290.html
John Partridge, The Globe and Mail
October 22, 2008
The U.S. dollar continued to flatten the loonie and every other significant currency except the Japanese yen early Wednesday, as hedge funds and other punters continued to unwind foreign investments and buy greenbacks as a prelude to repatriating the proceeds.
As Asian and European equity markets continued tanking, the Canadian dollar plunged as far as 79.71 cents US, down 2.68 cents from Tuesday's official Bank of Canada close and 4.06 cents from Monday.
This was also another in a series of recent three-year lows for the loonie, which just last November hit an all-time high of $1.10 US.
"This market is an absolute freight train, and there's no standing in the way of it," said Steven Butler, director of foreign exchange trading at Scotia Capital Markets in Toronto. "Canada was one of the worst performers overnight."
At 79.71 cents, it cost $1.2546 Cdn to buy $1 US compared with $1.1937 Cdn at Monday's close – and one British currency specialist said he thinks the greenback could strengthen to the point it is worth $1.30 within as little as a week.
"Given that in the last three weeks we've gone from about $1.05 to $1.25, it may be just a matter of a week or so until we see it moving into that kind of area," Ian Stannard, a currency strategist at BNP Paribas in London, said in a telephone interview.
The loonie's continued plunge was partly fuelled by the Bank of Canada's move yesterday to chop its benchmark interest rate by another quarter of a percentage point and strong signals it gave that more cuts are in store, making Canadian-dollar investments less attractive to currency buyers.
As well, the prices of oil and gold and other commodities, key drivers of the loonie's surge in recent years, fell again Wednesday amid more signs of a global economic slowdown.
But as has been the case for much of the past couple of weeks, the real story was more to do with U.S.-dollar strength rather than Canadian-dollar weakness.
"U.S. investors had been heavily invested in overseas and emerging markets," Stannard said. "But we're now seeing financial market tensions picking up in central and eastern Europe, where liquidity issues are arising . . . and that's providing support for the U.S. dollar right now."
During the global boom, there was plenty of "cheap U.S. liquidity," and that was used to fund positions in higher-risk, higher-yielding assets in emerging markets in Europe and elsewhere, he said.
Now, however, as funds' appetite for risk has vapourized, the process is being reversed.
"People are being forced out of these positions and have to buy U.S. dollars – that's why we're seeing such demand," he said.
The euro, meanwhile, is under pressure because the problems in emerging central and eastern European markets "are right in its backyard."
The European currency fell as far as $1.2743 overnight, its first break below $1.28 in nearly two years and down nearly 3.2 cents from Tuesday's close.
Scotia Capital's Butler said that investors are also hoarding U.S. dollars.
"Lending is loosening up, but they still want to make sure they have lots of dollar liquidity – for redemptions if they're mutual funds or hedge funds," he said.
One small saving grace for the loonie, is that it has performed better against the greenback than the Australian dollar, another resources-driven currency.
"Compared to the Aussie, we're not doing too badly," Butler said. "It's down about 20 percent in the last month and CAD is down about 17 percent," he said. "But, from the peak, the Aussie is down about 30 percent and CAD is down only about 20 percent."
Julian Jessop, chief international economist at Capital Economics in London, cited several other reasons for the greenback's strength, and said each of them also is "consistent" with the yen's strength.
"The most important is the growing recognition that, even though the U.S. may have led the way, the rest of the world is now heading for recession, too," he said in a note to clients Wednesday. Japan is in a better position, however, because it has avoided "imbalances" in household savings and government deficits that are plaguing Britain, for example. As a result, the Asian nation "should be among the first to recover as the global inflation shock fades," he said.
Echoing other economists and currency strategists in recent weeks, Jessop also said the U.S. dollar has actually become a safe haven.
"Even though the global crisis has been triggered by problems in the U.S. sub-prime mortgage market, U.S. policy-makers seem better able to deal with the economic fallout than their counterparts elsewhere," he said. "In particular, the [Federal Reserve Board's] dual mandate has allowed it to cut interest rates aggressively."
As well, Jessop said, the collapse in commodity prices, which are usually denominated in U.S. dollars, is "feeding back into a stronger dollar, and vice versa."
The net result of the greenback's strength is that he has revised a number of his key forecasts.
He is now betting that the euro, for instance, will fall to $1.20 US from its current level by the middle of next year, rather than to $1.25 as he previously forecast. He has cut his target for Brent crude oil – currently about $67 a barrel – for the same period to just $50 a barrel from $70, and now sees gold at $550 an ounce rather than $700."
Boy Charlie... I am glad I was not a betting man... on the loonie!
I couldn't see how it wouldn't go to 1.20 OVER... not UNDER the US$!
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