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Page added on July 25, 2015

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Getting hit by “currency war”

Getting hit by “currency war” thumbnail

The latest bank rate cut underscores government’s worried view of our economy. Driving down the loonie should help Ontario, Quebec and manufacturers in general. Those owning American stocks and real estate also win. Losers are consumers, cross-border shoppers and snowbirds.

The cost of imported goods from the U.S., is rising — vegetables, fruit, automobiles, etc. More risky stimulus for an already over-heated Vancouver and Toronto housing market. Less income for pensioners depending on their investments in bonds and GICs. Holidaying down south, expect much higher lodging and travel costs, including health insurance premiums.

The spiralling downward of our loonie has been swift and relentless. Peaking almost a decade ago at $1.10 American, our wounded bird seems destined to test 75 cents. The collapse began with OPEC, led by Saudi Arabia, trying to drive out high-cost fracked oil production. Their goal: protect OPEC members’ share of the oil market. Saudi Arabia bets that its massive foreign currency reserves will allow it to keep oil prices low until it has assured its market share. The Saudi princes have put their “money where there mouths are,” the State’s budget deficit is now enormous.

Fracking ballooned when economic times were better, just before the 2008-09 credit crisis, global recession and reduced Chinese economic growth. Oil producers employ new technology to wrest oil from previously too-costly places. Oil had passed $100 a barrel, seemingly destined to go even higher. But the days of belief in “peak oil” have receded, blown away with fracking and increased worry as to our carbon footprint. The global recession reduced demand just as oil production spiked, a recipe for falling oil prices even before the Saudis played their cards.

So, who will blink first, who will say “uncle,” cut production and allow oil prices to rise? Will it be the American frackers or the Middle East’s desert kings? It is anyone’s guess, but, history suggests what goes up goes down. Oil remains important, the world’s need for it will continue. Same with the other suffering commodities we have in abundance, Population and economic growth in the developing world will assure commodities’ place for decades to come.

But, until Canada’s economic growth leaves the intensive care unit AND oil and commodity prices in general recover, our loonie will remain in the tank. The Bank of Canada’s rate cuts seek to stimulate our slowing economy. The cuts have depreciated our currency and our lower dollar makes the products we still make more attractive to foreign buyers.

Canada is far from the only country that has a depreciating currency relative to the American dollar. Europe’s Euro, Mexico’s peso, and Australia and New Zealand dollars have fallen at least as far as our loonie has. We are in an undeclared ‘currency war,’ seeking advantage over other countries in an effort to increase exports while decreasing consumer imports. Already, trips to America have dropped by 20%.

While the United States — its currency the world’s reserve currency ­– now enjoys cheaper imports, eventually the other side of the coin will show. The drain of manufacturing jobs from America will resume along with export problems, slowing their economy, losing good jobs and weakening their dollar.

The pendulum will swing again.

www.winnipegsun.com



11 Comments on "Getting hit by “currency war”"

  1. BobInget on Sat, 25th Jul 2015 6:54 pm 

    Unlike USA, Canada is actually ENJOYING a favorable export environment. Bad for Canadian tourists abroad, great for Canada’s
    industry, including oil and gas.

    (oil is still priced in USD’s not loonies).

    I’ve said it before, if oil NYSE prices continue to trade between $47 and $50, shortages become inevitable. Most North American hedges fall off
    soon making payrolls, debt service, imposable South of the border. Since, not counting a half dozen resource wars, we are burning up at least
    94.5 million barrels per day worldwide, Canada’s oil (and gas) will be sorely needed.

    Global warming is a bigger issue for Canada the fluctuating currency environment.

  2. Makati1 on Sat, 25th Jul 2015 9:32 pm 

    The USD is strong because foreigners still live under the delusion that it is invincible. They are moving their money to the US under this delusion, but it is like jumping from the Lusitania to the Titanic. It is only a matter of time. The iceberg is dead ahead.

  3. BobInget on Sat, 25th Jul 2015 9:45 pm 

    Thanks for the warning, Makati Number One.

    Unlike the Titanic, USA is not populated mainly by rich people. Wasn’t American built or crewed. Didn’t have ‘look back in anger’ Makati #1 to warn of danger ahead.

    There are few countries on this planet that permit clowns like us to speak openly using our actual names.
    Bob Inget

  4. Makati1 on Sat, 25th Jul 2015 11:51 pm 

    bob, I think those days of seeming ‘freedom’ in the US are coming to an end. You are being recorded everywhere. Even if you use an alias, they know who you are and where you live.

  5. paulo1 on Sun, 26th Jul 2015 8:40 am 

    I have to agree with Bob on this….about freedom. It also applies to Canada. ‘They’ might know what we say, but people are still free to say what they want. And once Harper is out this fall election, our scientists will once again be able to slip their muzzles and say what they wish.

    About the loonie. If it wasn’t at $.77, we would be shut down in all economic facets. Our logging is booming here in BC as well as tourism. Canadians are staying home and spending their money at home. As an occasional consumer, I always look at available prices online for comparison; buying local when products are truly local. An example of this is a neighbour who has a small sawmill. I buy my lumber from him, most of the time, use a small lumber yard in town when I have to plus use a Canadian (Home Hardware) company for plumbing parts. It is still a franchised company but a ‘back easter’ company much like Rona. We stay away from Home Depot as much as possible.

    Grocery prices are rising, but from what I see people have their heads up their ass in the grocery store buying pre-cooked crap, whining about the price of ‘what they want’, and not buying what they absolutely need. What used to be a treat is now regular grocery purchases for families.

    We have a full house of company due to start arriving this afternoon. I have a new batch of bread rising while I write this, have elk steaks marinating for a big barbecue tonight, will get some fresh salmon today for tomorrows meal (as soon as the bread is out of the oven going fishing on the flood), and tomorrow we will have grilled salmon and grilled chicken (home grown) with all vegetables from the garden. The only bought product will be some rice for tonight’s terriaki elk, butter, and spices. Tomorrow, the only bought product will be spices and butter. Might get into the Crown Royal and Jack Daniels, though.

  6. idontknowmyself on Sun, 26th Jul 2015 11:19 am 

    People are moving money into US dollar because it is the best of the bad.

    US financial system is capable of handling of lot of financial transaction easily compare to China and other countreies financial system.

    What we are seeing is an international panic, people are trying to protect their paper wealth and are moving their money into USD.

    Japan, Canadian, Australian, Russia, dollars are all down sharply causing hyperinflation for these countries.

    Japan is a good example of that type of hyperinflation.

    See this a sign of people losing confidence in money.

  7. penury on Sun, 26th Jul 2015 11:46 am 

    The USD is strong, the discussion should be why? Well one only has to look at “Reserve Currency” if all trade must be conducted in USD, also “Foreign Aid” supply EMs with military aid or whatever, then when they try to pay you back of course they must convert to dollars, demand for dollars increases cost of dollars and debases other currencies. Right around total one third depreciation of other currencies results in EMs paying what amounts to a one third tax on all money owed to the U.S. Americans perceive this as winning. It is simply “war” under a different disguise and no one is winning, humanity is losing.

  8. paulo1 on Sun, 26th Jul 2015 1:01 pm 

    Idon’tknow

    There is no hyper-inflation in either of those countries.

  9. idontknowmyself on Sun, 26th Jul 2015 2:59 pm 

    Russia Says Inflation Could Hit 17% By March

    http://www.businessinsider.com/afp-russia-says-inflation-could-reach-17-in-2015-2015-1

    Hyperinflation … in Japan?
    http://www.cnbc.com/2015/02/22/hyperinflation-in-japan.html

    But one major side effect of its massive quantitative easing program, a sharply weaker yen, has pushed up some costs, including food prices, in the import dependent country.

    Canada and Australia have depreciating currency because they are commodity driven economy. Wont be long before these two countries currency devaluation start hyperinflation.

    In some country inflation is increasing even if we are in a world wide depression. Like I said, monetary analysis is becoming useless to explain what is happening.

  10. Makati1 on Sun, 26th Jul 2015 8:02 pm 

    Idontknow… The whole Western financial system is about to collapse. Those who moved to USDs will find out that they only prolonged the fantasy a bit longer as it too is destined to collapse. Russia and China have teamed up to take it down, or at least cripple it’s power.

    The rest of the world is taking sides, but China, Russia and India are not buying many tons of gold for nothing. They know gold will still have value after the crash. The US may not have any. No one has seen it for 60 years and an audit has been denied every time it is brought up. 10,000 years of history proves that gold is a reserve of wealth in the minds of most humans and that is where it counts. There is a pot of gold at the end of the rainbow. Not a pot of US paper. LOL

  11. Davy on Sun, 26th Jul 2015 8:32 pm 

    Poor Makster, his Asian illusion is deceiving him. Last I looked Makster China is the one stumbling. Russia is a mess with low oil prices let alone sanctions. India, well India is a mess as always.

    You crow about China gold and charmin dollars but the reality is different. I do not deny the western economies are in a slow collapse but they appear to be in better shape than your supper heroes.

    You know how wonderful it is to see you squirm like a chump with your airhead agenda. You are a complete idiot preaching an empty message. The sooner you disappear into the Phillippine hills the better.

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