Canadian Currency Stuck in a Range

Posted September 14, 2009

The Canadian dollar fell for a second day against the US dollar as oil prices dropped again. The Mexican peso weakened as 2010 budget deficits remain unsolved. The US dollar weakened against most major global currencies due to a trade disagreement between the US and China.


The Canadian dollar fell against the US dollar as oil prices fell for a second day.  Oil is Canada’s largest export and the loonie frequently tracks oil price changes. There has been a $4 decline in oil prices over Sunday and Monday leading to the Canadian dollar weakening to C$1.0768 when paired with the dollar.  This means one Canadian dollar will purchase 92.36 US cents.

During the month of September the Canadian dollar has been one of the worst performing currencies against the US dollar among major global currencies.  Canada’s current Prime Minister, Stephen Harper, is facing a serious threat from lawmakers unhappy with the way Canadian economic policy is being shaped. The Conservative led government may be forced to face a federal election which will be the 4th in five years.

The Mexican peso weakened also in response to falling oil prices.  The peso is also sensitive to the US/China trade disagreement as investors shed the emerging market assets in a wait-and-see stance.  The peso fell to 13.3812 pesos per US dollar.

Mexico continues to search for solutions to a 2010 budget deficit.  The country’s credit rating has already been lowered this year but there could be another negative change if next year’s budget problems are not resolved.  The current President, Felipe Calderon, wants to increase taxes but the opposition party objects to large components of the plan such as a proposed tax on food and medicine.  Even if the tax package passes intact it will probably not be large enough to plug the budget hole created by the recession and lower oil prices.

The US dollar fell against the euro to a yearly low when it reached $1.4620.  The yen rose slightly to 132.95 yen per euro. The euro rose in response to the threat of a trade dispute between the US and China.  China’s response to the US tariff on Chinese tire imports has been to start an investigation of certain US exports to China. The Dollar Index did not change much and was at 76.658.

There are many signs the economic recovery has finally started in many countries.  For example, the German investor confidence index is rising and US retail sales are predicted to show a 2 percent increase in August.  In addition, stock markets are rising as investors search for higher yielding assets.

The Brazil real rose to 1.8120 real per US dollar because the low US interest rates cannot hold investors for long as the recovery strengthens.  Brazil’s lending rate is 8.75 percent compared to the US interest rates of zero to .25 percent.

The UK recovery is expected to experience a setback if analysts’ predictions are true.  They are saying the housing market will begin to slump as mortgage lending problems resume and unemployment remains high.  Despite signs of a global recovery, credit markets remain tight which could lead to a stagnant housing market.

The UK pound fell to $1.6597 against the US dollar. The sterling also fell against the euro to 88.12 pence per euro. 

One of the most serious problems banks face around the world is the fact that loan losses are not fully accounted for yet.  Toxic assets remain on bank balance sheets and no one seems to know what to do with them. 

The Swiss franc weakened against the US dollar to 1.041 francs per US dollar.