Loonie nears Dollar parity

Canada’s Dollar Trades at Parity for First Time Since July 2008

Excerpt:

Canada’s dollar was worth more than the U.S. currency for the first time since July 2008 on the back of the rising price of crude oil and the prospect of higher interest rates.

Canada’s dollar, dubbed the loonie for the aquatic bird on the C$1 coin, last traded at par with the greenback on July 22, 2008, 11 days after crude, the country’s biggest export, reached a record $147.27 a barrel. Oil traded near a 17-month high.

“It’s a perfect storm for the Canadian dollar,” Jonathan Gencher, director of foreign exchange sales at Bank of Montreal in Toronto. “Canadian rates are higher and Canada will be moving before the Fed. Oil is higher. The fundamentals suggest we’ll hang around here for a while.”

The currency gained as much as 0.3 percent to C$99.92 per U.S. cents, and traded at C$1.0001 at 10:19 a.m. in Toronto, compared with from C$1.0022 yesterday. One Canadian dollar buys 99.98 U.S. cents.

The loonie traded on a one-for-one basis with the U.S. currency in September 2007 for the first time in three decades, capping a five-year run on the back of booming demand for the nation’s commodities.

Canada, the largest trading partner of the U.S., has benefited from rising demand for copper, gold, wheat and oil from the U.S. and emerging economies such as India and China. The country is the world’s largest producer of uranium, the second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Canada is also the world’s second-largest exporter of wheat.

Comment: Mentioned earlier here. A couple of neat sites if you are interested in exchange rates: OANDA and x-rates

Euro - Dollar chart

EUR/USD (EURUSD=X)


Comment: Back in 2002 the Dollar and Euro were 1 to 1

"the poor country lending to the rich.”

Dollar Shift: Chinese Pockets Filled as Americans’ Emptied

Excerpt:

The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.

This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, “we probably have little choice except to be patient.”

Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences, having been promoted to chairman of the Fed in 2006, as these cross-border money flows were reaching stratospheric levels.

In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

Comment: This can't last forever!

Audi attracted by weak dollar!

Audi Considers Stateside Factory

Excerpt:

BMW builds Bimmers in South Carolina. Mercedes-Benz manufactures Mercs in Alabama. Now Audi's considering an American factory. According to Auto Backstage, Audi CEO Rupert Stadler told Auto Motor und Sport that the weak dollar has forced Ingolstadt to consider building a factory in the U.S. Audi is aiming for an eight percent profit margin; an American assembly plant could help them realize that goal

Tyler Cowen: The benefit of the weak dollar

The Dollar Is Falling, and That’s Good News

Economic View
The Dollar Is Falling, and That’s Good News
By TYLER COWEN
Published: December 2, 2007
A weaker currency helps America sell more products abroad.

Excerpt:

A falling dollar does mean price inflation in the United States. Just as it costs more for an American to buy a fancy meal in Paris, so do French wines and German cars have a higher markup when they are sold in New York. But imports are only 16 percent of the American economy, and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. Furthermore many price increases from Europe come on luxury goods and thus they fall on wealthy American buyers, who can afford it most easily. Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia, where currency values have remained weaker against the dollar.

Of course the lower value of the dollar also makes American exports more competitive. Much of Middle America is booming because of its ability to sell tractors, food stuffs and other products abroad at favorable prices. Even after a serious real estate decline, the American economy is continuing to expand, and this is largely because of the strength of our export sector, as encouraged by a low value for the dollar.
....
SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. This isn’t because of neglect or lack of interest; trillions of dollars worth of currency are traded every day, so policy makers have only a limited ability to push around long-term exchange rates, even if they wanted to do so.

When it comes to market prices, people can always find reason to be unhappy. In the eurozone, for example, it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services.

In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

Scouring the ruins of the mortgage crisis

Oil $$$ comes home! This is not a bad thing! Just the result of the US addiction to imported oil, the falling dollar, and the subprime crisis!

Citigroup to sell $7.5 billion stake to Abu Dhabi

Intro:

Citigroup Inc (NYSE: C) is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and the resignation of its chief executive.

More:

Abu Dhabi blazes trail with Citi deal

Excerpt:

A $7.5 billion Abu Dhabi deal to buy Citigroup Inc (C.N: Quote, Profile, Research) shares may have created a model for acquisitions by Gulf and other emerging-market investors scouring the ruins of the U.S. mortgage crisis for bargains.

Mall of America: wunderbar

For foreign shoppers, a weak dollar is wunderbar, utmärkt, trÈs bien

Excerpt:

With euros, kroner and Canadian loonies gaining new muscle, Minnesota retailers are reaping rewards from far-flung consumers.

Andrea Guðjónsdóttir arrived in Minnesota from Iceland last week with nothing but the clothes on her back. Oh, and two empty suitcases, which she promptly filled to near-bursting with clothes, toys and other gifts during a five-day shopping spree in the Twin Cities.

"Everything's so cheap," said Guðjónsdóttir, 35, who lives in Akranes, a seaport city on Iceland's west coast. "You can pay $30 for Levi's here; at home, it'd be $200."

Comment: The Mall of America: where I don't shop. Article illustrates exchange rate benefits to Europeans.

Falling dollar good for exports

Falling Dollar Spurs Foreigners to Buy American, Pushing Exports to Record Level

Excerpt:

The improvement came from a 1.1 percent jump in U.S. exports, which climbed to a record $140.1 billion. The dollars' decline against many major currencies has made U.S. goods cheaper and more competitive in foreign markets. For September, sales of American-made cars, computers and farm products including corn, cotton, wheat and soybeans were all up.

Imports also rose in September, climbing by 0.6 percent to $196.6 billion, the second highest level on record. Imports of foreign-made cars, televisions and clothing were all up. Oil imports, however, fell by 0.8 percent to $10.5 billion, an improvement that is likely to be temporary given the recent surge in oil prices to close to $100 per barrel.

The deficit with China rose 5.5 percent to $23.8 billion, second only to a $24.4 billion deficit in October 2006. Imports surged to the second highest level on record, pushed up by big gains in imports of Chinese-made televisions, cell phones, computers and toys as retailers stocked their shelves for Christmas.

Those gains were occurring despite a string of high-profile recalls of Chinese products this year -- everything from toys with lead paint to defective tires and chemical-tainted toothpaste and pet food ingredients.

Through September, the trade deficit is running at an annual rate of $703.4 billion, down by 7.4 percent from last year's $758.5 billion. Analysts believe that surging exports from a weaker dollar will lead to a narrowing of the deficit for the full year, breaking a string of five consecutive records.

Critics of President Bush's trade policies say that even with the narrowing of the deficit this year, the imbalances are still running at unsustainable levels, forcing the United States to depend more and more on foreigners' willingness to hold dollars to finance the imbalances.

While a falling dollar is good for exports, it raises worries that at some point foreigners will be less willing to purchase dollar-denominated investments such as U.S. stocks and bonds. Such a change in sentiment could send stock prices plunging and push up U.S. interest rates.

Comment: The economic silver behind the gray cloud!

The Almighty Ruble

The Almighty Ruble



Business / World Business
The Almighty Ruble
By ANDREW E. KRAMER
Published: August 8, 2007
Lifted by high oil prices and a wave of foreign investment, the once humble ruble is showing its muscle, and fueling a consumer boom.

Excerpt:

After gaining 20 percent in value against the dollar in the last few years, the ruble is even starting to displace the greenback as Russians’ currency of choice for both saving and spending.

As the ruble increases in value — not just against the dollar, but against brawnier currencies, too, like the euro — imported goods are becoming cheaper for Russian consumers. Now ruble notes, once handed over by the fistful for a loaf of bread, are being used to purchase Mercedeses, flat-screen televisions and European beach vacations.


Comments: Image from the Central Bank of Russia. Even with a degree in Economics, I still find foreign exchange mysterious!