Originally Posted by herrvonsteiner

John, I have no problem with currency pairs over a long term (years/decades) being reasonably good indicators of the respective economies they relate to. But the Financial Post (FP)article (quoted by RBP) goes into a long list of very recent negative Canadian economic ails and then attributes these to the U.S. economy: "U.S. economy clips the loonie's wings". In Canada it's also a perennially popular theme to blame the U.S. for the movement of the loonie as follows: if the U.S. goes into recession the CAD should go down due to reduced demands for Canadian exports. At the same time many analysts expect the CAD to go down once the U.S. economy improves. I read this opinion everyday. If you add these two views you have to conclude that the CAD should go down regardless how the U.S. economy performs.
I brought up the USD/CHF pair as an example how absurd the FP argument is by pointing out that the Swiss economy is booming yet in synchron with the USD/CAD the USD/CHF also increased by about 5% in less than a week. We cannot use economic argument such as: "U.S. economy clips the Swissy". Swiss trade with the U.S. is marginal compared to Canada's trade with the U.S. and the same can be said with respect to the EUR/USD which also underwent a small decline from 1.60 to 1.54. But what did it used to be some years ago? Near 1.1. Now that's a significant economic indicator and again it is the long term.

And yes, you are absolutely right to disagree when it comes to correlating CAD to oil prices. I guess I should have said that again I was talking short term. I wanted to emphasize that short term, even huge oil price changes (30-50% as recently) do not predict which way the USD/CAD will go and I used that extreme example of 90 USD oil versus USD/CAD = 0.91. Compare that again with near 150 USD oil but USD/CAD = 1.02 (about) some weeks ago.

If the FP meant that the dire U.S. economy is finally "clipping" the "high-flying" loonie then there is truth to that. Especially in view of the almost histerical cries by Canadian politicians and union leaders that the CAD should go down. It's also a fact that the "high" loonie is more than a thorn in the eye of many in the U.S. I suspect the reasons are not merely financial.

So, to answer your last question as to what I expect will happen to the USD/CAD. It will go down short term and 1.10 1.15 is likely in the short term After all that's what everybody wishes. And self-fullfilling prophesies are not unknown in the currency markets (just look at the success of some Fibonacci afficionados) But again, I'm talking strictly short-term.


Regards to all