So, Where’s the Loonie Going?

About three years ago, just before the commodities’ boom, there was a following of analysts who expected our loonie to hit parity in the near future. I’m not sure if that “near future” extended for three years or so, but the Canadian dollar got there eventually. And then, within just two months of breaking a three decades’ old record, our loonie erased two more decades of history, hitting the target of US$1.10

And while the loonie hitting the 30-year old record had to do with the strength of the Canadian economy and the boom in the commodity markets, the $0.10 our Canadian bird “swallowed” in the last two months appears to have more to do with the creditworthiness, or lack thereof, of some of the biggest birds on Wall Street, such as Merrill Lynch, Citigroup and Bear Sterns. This first-credit-creating-then-credit-destroying Holy Trinity managed “tri-handedly” to cut the greenback at its knees.

Granted, the U.S. dollar has lost much of its luster since the big tech bubble bang, but it owes this latest descent to the best and the smartest on Wall Street, these brilliant mathematicians and statisticians who kept on coming up with more complex, new investment vehicles that eventually chipped off much of the U.S. global economic prestige.

Since this summer, hard financial truths have kept on hitting us like demolition balls. We found out that the U.S.; that is, the major Wall Street powerhouses, were on the hook for hundreds of billions of dollars in dubious mortgage and asset-backed securities. These revelations resulted in sort of a double-whammy for investors; not only were the overall stock markets taking a beating, but also those investors holding shares in troubled financial institutions have experienced declining portfolios.

The most obvious victim of the high-risk mortgage debacle in the U.S. was the greenback, of course. On the other side of the equation were gold and, due to proximity, the Canadian dollar. Namely, with the U.S. dollar weakening across the globe, the Canadian dollar took the role of an extremely appealing alternative investment in North America’s currency and other markets. Of course, the fact that Canada is strong fundamentally couldn’t have hurt either.

And while the rest of the world struggled to make sense of how an obscure market segment could bring down the world’s most powerful economy to its knees, the Wall Street bosses reportedly laughed off weeks of financial crises by engaging in their favorite pastimes, such as golf, bridge, and who knows what else. That was the last straw for many investors, who dumped shares of big U.S. banks, along with their bonds and, when they were done, they went for the dollar’s jugular.

Both domestic and international loathing for Wall Street has reached critical mass. This is why even Canada, though certainly no stranger to controversy, appears to be a straight shooter to global investors. And while the U.S. dollar and Wall Street bankers are choking the life out of each other, the loonie and gold are running away with the loot. Some analysts expect the loonie to reach and maintain levels substantially above parity, even if prices of oil come back down US$20.00 per barrel.