Loonie Rising Overshadows Even the Oil Patch

Monday, October 29th, 2007
By Inya Ivkovic, MA for Profit Confidential

Last week was a really time exciting on Canada’s oil patch. The Alberta government decided to slap additional royalties on its own oil industry, a move that is expected to haul in about CDN$1.4 billion more to Canada’s treasury every year. But then, oil prices hit record highs, tipping over $92.00 per barrel for a moment, while the loonie rose to over US$1.04.

And while the new royalties regulation seriously angered Alberta’s oilmen, the news was somehow overshadowed by the loonie’s performance, as well as the fact that oil prices have been on a roll recently as well. Economists feel that the reaction would have been quite different if oil prices had been declining.

In the meantime, the U.S./Canadian dollar divergence has become everyone’s focus in Canada because it only exacerbates the growing differences between the two economies. Unfortunately, evidence that the U.S. economy could potentially be heading into a recession came from other foreign currency markets as well.

For example, the U.S. greenback scored a new low against the euro as well, mostly on speculation that the Federal Reserve is likely to slash interest rates some more next week. Further adding to the overall anguish about the state of the U.S. economy were reports about the sour housing market and weak orders for durable goods. Not surprisingly, nearly everyone and anyone holding the U.S. dollar marched for the exit, not wanting to further chop their purchasing powers.

In contrast, the Canadian dollar is growing stronger and our treasury fatter (and not just from foreign exchange gains), while the only sour notes are coming from the manufacturers and silly stories about some car dealerships in the U.S. that are refusing to sell their cars to Canadians.

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Tags: euro, interest rates, U.S. dollar, U.S. economy