View Full Version : Canadian Dollar peaked?
NFN_NLN
05-24-08, 02:05 PM
If commodities have peaked then the Canadian dollar has peaked too? The analysts are predicting a decline into 2009. Up until now it was always parity or an increase. Is it time to:
1) Move CAN funds into US currency???
2) Move CAN funds into other currency
3) Hold?
--------------
Oil, gold and other raw materials account for half of Canada's exports.
Crude oil gained for a third week.
Currency Forecast
Canada's dollar will decline to C$1.08 by the first quarter of 2009, according to the median forecast of 38 analysts in a Bloomberg survey.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atj0Gd2wvLNg
If commodities have peaked then the Canadian dollar has peaked too? The analysts are predicting a decline into 2009. Up until now it was always parity or an increase. Is it time to:
1) Move CAN funds into US currency???
2) Move CAN funds into other currency
3) Hold?
--------------
Oil, gold and other raw materials account for half of Canada's exports.
Crude oil gained for a third week.
Currency Forecast
Canada's dollar will decline to C$1.08 by the first quarter of 2009, according to the median forecast of 38 analysts in a Bloomberg survey.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atj0Gd2wvLNg
As you note, the Canadian $ is highly correlelated to commodities, particularly oil. It's the same bet, whichever way you happen to be leaning re: commodities right now.
But note that the pundits have been predicting a peak in commodities/oil for many years now. Why would you think they are right this time?
If commodities have peaked then the Canadian dollar has peaked too? The analysts are predicting a decline into 2009. Up until now it was always parity or an increase. Is it time to:
1) Move CAN funds into US currency???
2) Move CAN funds into other currency
3) Hold?
--------------
Oil, gold and other raw materials account for half of Canada's exports.
Crude oil gained for a third week.
Currency Forecast
Canada's dollar will decline to C$1.08 by the first quarter of 2009, according to the median forecast of 38 analysts in a Bloomberg survey.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atj0Gd2wvLNg
I note the article recommends selling Loonies against Yen and the Swiss Franc.
The Yen and Swissie are also favourites of others like Jim Rogers, who are probably much smarter than I am.
However, about two months ago I closed my approximately 15 month old long Swissie positions and took all my profits. My thesis at that time was that banking is more important to the Swiss economy than it is to the USA or UK, and the Swiss Central Bank and government would likely stop at nothing to protect that industry. Given the severe problems at UBS and some serious cracks at Credit Suisse, seemed to me that the potential for a Fed style bail-out was becoming quite high in Switzerland. And that was unlikely to be healthy for the traditional safe-haven currency that is still living off it's historical (but now absent) gold backing. So I sold.
Yesterday this showed up on Reuters. The highlighted stuff sure sounds like it could have been lifted directily from a rubber-chicken lunch speech by any of the US Fed Governors. I don't see a strong case to buy the Swiss Franc at this point.
SNB says ready to bail out banks in case of need
Reuters, Friday May 23 2008
ZURICH, May 23 (Reuters) - Switzerland's central bank on Friday opened the door to radical intervention to support the Swiss financial sector in case of crisis, including taking ailing assets from struggling banks onto its books.
Swiss National Bank chairman Jean-Pierre Roth said the SNB would be prepared to help a struggling bank clean up its books if it threatened the Swiss financial system.
"In exceptional cases and with political approval, they (central banks) may be forced to take excess positions from the private sector onto their books temporarily," he said in the text of a speech to be delivered in Geneva.
The Bank of England and the U.S. Federal Reserve have already acted boldly in recent months to prevent crises in individual banks triggering a meltdown in a financial system already seriously destabilised by the credit crisis.
The Swiss financial sector has been rocked by $37 billion in writedowns at its biggest bank UBS AG , making it Europe's worst subprime victim, and by almost $10 billion in writedowns at rival Credit Suisse .
"With its solid balance sheet, the (Swiss) National Bank is prepared to take on risks if the financial stability of the country is threatened," he said. "In times of crisis, the imperative of preserving financial system stability override that of the profitability of a central bank."...
http://www.guardian.co.uk/business/feedarticle/7536196
Jim Nickerson
05-24-08, 03:12 PM
I note the article recommends selling Loonies against Yen and the Swiss Franc.
The Yen and Swissie are also favourites of others like Jim Rogers, who are probably much smarter than I am.
However, about two months ago I closed my approximately 15 month old long Swissie positions and took all my profits. My thesis at that time was that banking is more important to the Swiss economy than it is to the USA or UK, and the Swiss Central Bank and government would likely stop at nothing to protect that industry. Given the severe problems at UBS and some serious cracks at Credit Suisse, seemed to me that the potential for a Fed style bail-out was becoming quite high in Switzerland. And that was unlikely to be healthy for the traditional safe-haven currency that is still living off it's historical (but now absent) gold backing. So I sold.
The important measure is whether Rogers or you are the wealthier. Remember: he who has the most toys wins, or so some seem to believe
NFN_NLN
05-24-08, 03:34 PM
As you note, the Canadian $ is highly correlelated to commodities, particularly oil. It's the same bet, whichever way you happen to be leaning re: commodities right now.
But note that the pundits have been predicting a peak in commodities/oil for many years now. Why would you think they are right this time?
The Canadian dollar is highly correlated to commodities but there are other factors at play. These other factors are what worry me. In Alberta it's like we're 2-3 years behind the US on trends and we just shadow them. When the housing boom was happening in the US you could still buy homes in Calgary for $300K and homes in Edmonton for $250. Calgary peaked first and then Edmonton a full year later and then the wave spread to Saskatchewan. There's NO shortage of land in any of these places, it is/was all a price run-up based on a shortage of labour.
Now these places are all sitting on excess inventory. Not on the scale of the US but Canada never does anything to the scale of the US.
It's just my instinct but it feels like the housing wave rippled into Canada and the crash is going to ripple in just like every other major US trend. If this is true then the US being at it's lowest and Canada at it's highest has created the largest delta and an economic blip resulting in dollar parity between the two countries. It feels like once things start to slow down again in Canada (and that's already predicted) that the Canadian dollar will revert to it's historical mean.
Any thoughts?
The important measure is whether Rogers or you are the wealthier. Remember: he who has the most toys wins, or so some seem to believe
I am sure Rogers is much wealthier than I, at least monetarily. And although I like to understand the thinking of people like Rogers (although not as old as Buffett or Templeton, I regard him as one of the grizzled old market veteran clan) I never assume they are going to be "right". They are human just like the rest of us, even though they are rich. And as EJ has noted, we may be in a period unlike any the US has ever experienced before, so conventional unconventional thinking won't do (I'm starting to sound like Rumsfeld).
You may recall that I posted some time ago (in answer to one of your questions in a post I believe) that I thought the Swissie would get to par with the US $ (and the Yen would probably go to 80). Well the Swissie is almost there, and I didn't see a need to get greedy given the UBS and CS balance sheet situations.
I truly believe that Switzerland now has a big problem, much bigger than anyone expected given the previously sterling reputation of Swiss bankers. And maybe much bigger than many are yet willing to acknowledge. They may be forced to trash their currency, perhaps not against the US $ but against the Euro.
The Canadian dollar is highly correlated to commodities but there are other factors at play. These other factors are what worry me. In Alberta it's like we're 2-3 years behind the US on trends and we just shadow them. When the housing boom was happening in the US you could still buy homes in Calgary for $300K and homes in Edmonton for $250. Calgary peaked first and then Edmonton a full year later and then the wave spread to Saskatchewan. There's NO shortage of land in any of these places, it is/was all a price run-up based on a shortage of labour.
Now these places are all sitting on excess inventory. Not on the scale of the US but Canada never does anything to the scale of the US.
It's just my instinct but it feels like the housing wave rippled into Canada and the crash is going to ripple in just like every other major US trend. If this is true then the US being at it's lowest and Canada at it's highest has created the largest delta and an economic blip resulting in dollar parity between the two countries. It feels like once things start to slow down again in Canada (and that's already predicted) that the Canadian dollar will revert to it's historical mean.
Any thoughts?
Hard to say if Western Canada will experience a "crash" in real estate, but what you say about Alberta, Sask (& by extension Vancouver) real estate makes sense. Difficult to see how the levered real estate price run-up anywhere in the world cannot be negatively effected by the contraction in credit underway. I agree with you that Canada is not immune. SOunds like you are in Alberta or Saskatchewan and able to watch that real estate market up close?
I am not sure I see a strong correlation between that and the relative value of the Cdn $. As you say, there's a lot of variables.
I think there is certainly danger of a Loonie drop vs US$ if the Cdn Govt decides that political heat from Central Canada (Ontario and Quebec) manufacturing provinces is going to be too much going into an election.
The minority Conservative Govt (I see they have FINALLY stopped calling themselves Canada's New Government :rolleyes:) needs the votes in those two provinces and may try to find some way to debase the currency before they lose a non-confidence vote and are forced to the polls. They want a majority, not another minority. BUt that is just a theory. I don't see any evidence that Carney is under any pressure to debase. Yet.
It's more than UBS and Credit Suisse to be concerned about. Back on 25 April EJ posted an item about "UBP in trouble?" in the Rumors section, so there's probably more going on below the surface, out of site.
Central Banks announcing, as SNB did yesterday, that they are willing to degrade their balance sheets would not seem all that healthy for the currency. Would be interested if any European based finance sector iTulip members (Christoph von Gamm?) might weigh in with their views on the Swiss situation, if they are able to do so publicly.
As you note, the Canadian $ is highly correlelated to commodities, particularly oil. It's the same bet, whichever way you happen to be leaning re: commodities right now.
But note that the pundits have been predicting a peak in commodities/oil for many years now. Why would you think they are right this time?
because the recession is starting to bite?
because the recession is starting to bite?
To butt in, and as usual irritate everyone, here's a picture of why the "Cheap" matters when talking about Peak Cheap Oil.
http://www.itulip.com/images/oildepletionPrices.gif
Crude oil prices are average annual in 2007 dollars per InflationData.com (http://inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp).
New American Dollars assumes a new national currency by 2030 priced in oil. :eek::D
GRG,
In a discussion we had nearly a year ago, I had pointed out that Switzerland's currency was 40% dollar based.
As it turns out, that 40% appears to be all MBS and CDO.
So far, Russia still looking good...
To butt in, and as usual irritate everyone...
Lukester would approve of that part... ;)
...here's a picture of why the "Cheap" matters when talking about Peak Cheap Oil.
...and perhaps even this part.
New American Dollars assumes a new national currency by 2030 priced in oil. :eek::D
Now that Finster has convinced us that Dollars are just another commodity (albeit without the customary lagging supply constraints) one can imagine "oily dollars" taking their rightful place alongside jk's " greasy wool" in an index??
Just askin'
because the recession is starting to bite?
Certainly possible for that reason jk.
And more or less how it's always worked in the past (US recession slows raw material & energy demand, prices fall, falling dollar sets stage for reflation recovery in US economy, US $-linked economies like Saudi also recover concurrent with USA, rinse and repeat).
Always dangerous to expect it to be "different this time". But if...
we are now in a consumer led recession in the USA;
with spill over effects globally, but tempered by large foreign CB-held fiat currency reserves;
and a Fed already approaching the zero bound (or as close as they would like to be for the moment);
leading to an expectation that the Fed will now stop targetting interest rates and instead focus on the monetary base (as EJ has posited a few times in recent months);
wouldn't this "help" for consumers largely gravitate to "needs" instead of "wants". Like the need to eat, and the need to heat?
wouldn't this "help" for consumers largely gravitate to "needs" instead of "wants". Like the need to eat, and the need to heat?
grg,
in general, demand for necessities will hold up better than for discretionary consumption. but even so, won't total demand diminish even for "necessities" in a global consumption-led recession? oil prices will remain relatively high, so consumers with pinched pocketbooks will turn down their thermostats and drive less. part of increased food demand has derived from rising incomes in asia leading to increased demand for meat. with falling incomes, diets will likely tend to become more vegetable-based again, with a leveraged effect on prices. [it takes about 8 units of vegetable food to produce 1 unit of animal product. thus there is a leveraged effect on demand for vegetable-based food as diets change in either direction.]
thus, i would expect a recession to temper demand even for necessities. although their prices might remain high relative to their historical levels, surely those prices will be at least somewhat lower in the context of recession than in the context of prosperity. i don't see oil dropping back to $30, but surely it could drop to $70-80, or even 60. do you not think so?
grg,
in general, demand for necessities will hold up better than for discretionary consumption. but even so, won't total demand diminish even for "necessities" in a global consumption-led recession? oil prices will remain relatively high, so consumers with pinched pocketbooks will turn down their thermostats and drive less. part of increased food demand has derived from rising incomes in asia leading to increased demand for meat. with falling incomes, diets will likely tend to become more vegetable-based again, with a leveraged effect on prices. [it takes about 8 units of vegetable food to produce 1 unit of animal product. thus there is a leveraged effect on demand for vegetable-based food as diets change in either direction.]
thus, i would expect a recession to temper demand even for necessities. although their prices might remain high relative to their historical levels, surely those prices will be at least somewhat lower in the context of recession than in the context of prosperity. i don't see oil dropping back to $30, but surely it could drop to $70-80, or even 60. do you not think so?
Soros thinks so:
George Soros: rocketing oil price is a bubble (http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/05/26/cnsoros126.xml)
By Edmund Conway, Economics Editor
Last Updated: 1:40am BST 26/05/2008
Speculators are largely responsible for driving crude prices to their peaks in recent weeks and the record oil price now looks like a bubble, George Soros has warned.
The billionaire investor's comments came only days after the oil price soared to a record high of $135 a barrel amid speculation that crude could soon be catapulted towards the $200 mark.
In an interview with The Daily Telegraph, Mr Soros said that although the weak dollar, ebbing Middle Eastern supply and record Chinese demand could explain some of the increase in energy prices, the crude oil market had been significantly affected by speculation.
"Speculation... is increasingly affecting the price," he said. "The price has this parabolic shape which is characteristic of bubbles," he said.
At just over $130 a barrel, the price has doubled in around a year, causing misery for motorists and businesses.
However, Mr Soros warned that the oil bubble would not burst until both the US and Britain were in recession, after which prices could fall dramatically.
We'll add George to our iTulip.com Stopped Clock Chorus of Oil Bubble Collapse Warnings.
http://www.itulip.com/images/oilpricecrash.gif
Everyone assumes that global recession will dramatically impact oil prices. Certainly demand will decline. The question we've been asking is, might demand for dollars fall faster than demand for oil? Remember, oil demand in OECD countries has been declining since 2004 while oil prices as priced in dollars have spiked and demand for dollars as measured against an index of other currencies has fallen 50%. What if demand for oil and for dollars declines further in recession? The question is about competing rates of change and lag effects: rate of decline of demand, rate of decline in dollar demand, rate of decline of demand for Asian exports that are supporting Asian economic growth, rate of "Single Malt" oil depletion, etc.
http://www.itulip.com/images/oildepletionPrices.gif
grg,
in general, demand for necessities will hold up better than for discretionary consumption. but even so, won't total demand diminish even for "necessities" in a global consumption-led recession? oil prices will remain relatively high, so consumers with pinched pocketbooks will turn down their thermostats and drive less. part of increased food demand has derived from rising incomes in asia leading to increased demand for meat. with falling incomes, diets will likely tend to become more vegetable-based again, with a leveraged effect on prices.
thus, i would expect a recession to temper demand even for necessities. although their prices might remain high relative to their historical levels, surely those prices will be at least somewhat lower in the context of recession than in the context of prosperity. i don't see oil dropping back to $30, but surely it could drop to $70-80, or even 60. do you not think so?
I am sticking with my oft repeated view that in the short term oil prices could go anywhere. So your outcome is well within the range :D
However, the cost of purchasing "needs" (including energy) is measurably lower for citizens of countries with appreciating fiat currencies (against the US $) so recession tempered demand for necessities may not be as great as experienced in the "normal" post war recession pattern.
I speculate a bit about how much protein demand increase (so far) has been driven by a big shift from vegetable to meat based proteins.
A dietary shift to meat certainly requires increased income, but I observe dominant cultural norms and traditional eating patterns/food preparation and cooking habits that seem to me more influential than income (I will freely admit that our North American fast food influenced living habits may be the exception to this ;) ).
Even vegetable based diets are influenced by this. One example; NW India has traditionally grown wheat and used it to make the staple steam leavened whole wheat bread. The advent of electrification and irrigation brought much land into rice production. 30 years on, few of the families eat much rice, preferring their traditional bread. The rice is an export cash crop. My sense is that from Italy to Indonesia generation after generation prepare and serve traditional (and familiar) national and local cuisine. Travelling with my Arab partners as far afield as London, Geneva and the south of France I was amazed at the lengths they would go to in order to find a top class Middle East restaurant that served mezza and the traditional and familiar dishes from back home.
In the same way all across developing Asia I wonder if consumption of, say, pork in China will increase not because people are substituting pork for vegetables, but because people are eating more pork with vegetables in traditional dishes. Also religious considerations (against eating pork or beef or any red meats for example) are another factor to consider.
I find it ironic that in the midst of what the media is calling a global "food crisis", the Canadian government is paying hog producers to reduce their breeding herds at a time of low prices. The one good thing that will come out of this program is a short term boost of pork supplies to food banks. In the longer run the price of pork for Canadians (and others who may be following the same path) is going up, and that, as you say, is bound to force a reduction of consumption of it.
Cull Breeding Swine Program
On February 25, 2008, the Canadian government announced a $50 million program designed to reduce the Canadian hog breeding herd by up to 10% over and above normal annual culling. The funding could effectively remove 150,000 breeding animals from the Canadian herd. If such a reduction in the breeding herd is reached, this would reduce annual hog production by approximately 3 million pigs, or 10% of production.
[I]Purpose of the Cull Breeding Swine Program
To facilitate the cull of breeding swine in Canada
To assist hog producers in their attempts to manage through the current market situation of low hog prices, high feed grain costs and a strong Canadian dollar
my understanding is that meat is relatively cheap now. because feed costs are so high, herds are being culled rapidly, bringing a lot of meat to market. this will lead to higher prices later, of course.
NFN_NLN
06-01-08, 01:30 PM
If commodities have peaked then the Canadian dollar has peaked too? The analysts are predicting a decline into 2009.
It may have already started:
"Canadian Economy In Trouble
While the whole world is worried about the slowdown in the US, Canada has to deal with a shocker in its backyard today. For the first time in almost 5 years, Canada’s economy contracted in the first quarter. Its GDP shrank an annualized 0.3% (0.4% gain expected) in January through March following an 0.8% growth in the fourth quarter. On a quarterly basis, GDP fell 0.1% after growing 0.2% previously.
This data is unexpected, and compared with the 0.9% gain in the US economy in 1Q, it seems even more unreal. Vehicles and parts production were the hardest hit, accounting for 40% of the fall in manufacturing. The Canadian dollar immediately fell against the US dollar after the news release. We think that the Bank of Canada may be forced to cut interest rates again next month."
I am sure Rogers is much wealthier than I, at least monetarily. And although I like to understand the thinking of people like Rogers (although not as old as Buffett or Templeton, I regard him as one of the grizzled old market veteran clan) I never assume they are going to be "right". They are human just like the rest of us, even though they are rich. And as EJ has noted, we may be in a period unlike any the US has ever experienced before, so conventional unconventional thinking won't do (I'm starting to sound like Rumsfeld).
You may recall that I posted some time ago (in answer to one of your questions in a post I believe) that I thought the Swissie would get to par with the US $ (and the Yen would probably go to 80). Well the Swissie is almost there, and I didn't see a need to get greedy given the UBS and CS balance sheet situations.
I truly believe that Switzerland now has a big problem, much bigger than anyone expected given the previously sterling reputation of Swiss bankers. And maybe much bigger than many are yet willing to acknowledge. They may be forced to trash their currency, perhaps not against the US $ but against the Euro.
Just in case there was any remaining doubt...:D
Swiss Franc Drops by Record Versus Euro as SNB Lowers Key Rate (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apBOvX1gUd0o)
March 12 (Bloomberg) -- The Swiss franc fell by a record against the euro after the country’s central bank cut interest rates and said it began intervening to weaken the currency.
The Swiss National Bank cut its three-month Libor target rate a quarter-point to 0.25 percent, in line with the median forecast of 15 economists surveyed by Bloomberg News. The SNB also said it will buy corporate bonds in its first solo intervention in foreign-exchange markets since 1992.
“The big move in the franc was driven by the SNB’s massive quantitative-easing program,” Kathy Lien, director of currency research at GFT, an online currency-trading firm in New York, wrote in a client note. “This should be the beginning of further losses in the franc.”
The franc fell as much as 3.4 percent to 1.5304 per euro...The losses pushed its decline versus its common European counterpart to 2 percent this year.
Switzerland’s franc also declined 3.8 percent to a three- month low of 1.1967 against the dollar...
Lukester
03-13-09, 07:30 PM
GRG - A Swiss banking advisor did his level best to convince me to park my funds in Euros / Swiss francs, short of the US dollar. He had me swayed for about a week, then I did my own hard thinking, stuffed my ears full of wax like Odysseus sailing past the Sirens, and placed all my cash into USD while countenancing no further arguments. I'm up close to 10% in a matter of weeks against the EURO and Swiss Franc with 65% of my net assets. The toughest thing in the world is to find your inner core of conviction and realise you have better intel than a Swiss banker's advice. This banker (whose business it is presumably to know something as elementary as which currencies to park in) now has egg all over his face on this call today. I knew that I knew better, I just didn't trust myself. Fortunately I learned to trust my own instinct.
http://thanasis.com/odsirenr.jpg
ODYSSEUS LISTENS TO THE SIRENS' SONG :rolleyes:
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