Canadian Dollar On Par With USD…

September 21st, 2007

Well the Canadian dollar is now on par with the USD. This is something I have known would happen for about three years, if not longer. It finally happened! It’s no surprise to me, but a lot of other people seem to be very surprised. Three years ago the $1 CDN was worth $0.77 USD. I imagine a lot of currency traders have made a ton of money on Forex, with their 100:1 margin… With just $1,000 USD invested you can make about $1,000 per penny change (100 pips). But Forex isn’t my thing, I’m more of a long term investor and that much leverage can hurt you badly in the short term dips and rallies that occur.

Now What?

I suspect the USD and CND will bounce around for a bit. I wouldn’t be surprised to see a little strength on the USD side after this sharp rally… BUT… the USD is still going to be headed lower over the long term… or at least until a new government is formed in the US that has different policies. There are some economic weaknesses that were inevitable… I spoken about this before but I’ll say it again: When that many people buy expensive homes and spend a lifetime of earnings on a home all at the same time, the country is bound to see a boom. Now that so many people have spent a fortune all at once, things are bound to slow… its natural and healthy… going straight up forever is NOT.

Lowering the interest rate is only going to cause the USD to head lower, they know this. They are hoping it will stop the real estate slowdown, but I have my doubts and think lowering the interest rate was a bad idea. There is going to be a little slowdown, and they should have just weathered the storm for a year or two. Now ALL commodities and imports are going to cost the average family more money and that will put a squeeze on the economy. My guess is they are hoping by printing ~13% more money and lowering the interest rate they will be able to spur some export growth and create some more manufacturing jobs. I guess time will tell.

Commodities Headed Higher

Not only is demand increasing for all commodities due to India, China and the rest of the world industrializing and population growth increasing, but the USD is also becoming worth less money. Most commodities are quoted in USD and since the USD is headed down that puts two pressures on the price of commodities… the result is the prices for most commodities will probably increase in terms of USD. The bad thing is that sometimes the commodities don’t increase in price as quickly as they should. You may not realize this but three years ago with $50 oil, Canadian oil companies were doing about the same as they are today… the rise to $80 oil hasn’t really been a gain because the value of the USD is falling and they get paid in USD. I suspect oil is headed a whole lot higher just due to the falling USD. Gold, silver, oil, and all the other commodities of the world will be headed higher if their supply/demand fundamentals remain about the same… This makes investing easy… pick a commodity that is quoted in USD around the world that has a large and growing demand but a stable or shrinking supply, and you’re bound to make money. It’s not rocket science, but sometimes the dollar may fall faster than the price of commodities rises, and that is the lag time that proves the markets aren’t 100% efficient all the time.

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