Effect of a Rising Loonie Varies Greatly by Sector

(Daily Commercial News – Alex Carrick, CanaData)

Once again, the Canadian dollar is flirting with U.S. dollar parity. What will be the consequences if the loonie shoots past parity with the greenback? How much worse (or better) will things get? Which comes first, the U.S. dollar fall or the increase in the world price of oil? The answer is far from clear. There are logical arguments that explain the weakening in value of the U.S. dollar. First among these is the US$1.4 trillion fiscal deficit that Washington is wallowing in.

There is also the fact that the retreat into U.S. dollar holdings is no longer as important as it was in the final quarter of last year. The U.S. dollar received support while risk aversion was seen as a top priority. Now investors are moving into other assets such as stocks and commodities.

Recovery in China is already helping to drive up some commodity prices. There are still large excess inventories of oil stored in tanker fleets, but this may turn around relatively quickly. China is already moving more cars off showroom lots each month than is the case in the U.S. Read more here.