The Loonie - A Petro-Currency

If you ever doubted the fact that the Canadian Dollar is a petro-currency; that its value is highly correlated to the value of petroleum, have a look at these two charts.

The chart on the top is value of the Canadian Dollar versus the US Dollar. Note how the value stayed in the $0.96 USD to $1.02 USD range until August. Then in September the Loonie fell off a cliff as it plunged from $0.96 to a $0.77-$0.80 range. No more cross border shopping, and my US stock holdings essentially all increased their dividends and didn't fall as much as they truly did in the market.

click to enlarge

Now look at the chart on the bottom, showing the value of oil through the US Oil Fund ETF which tracks the price of the black stuff. The exact same pattern is evident, a July/August drop preceded a September plunge. One of my vehicles now costs $20 to fill up and the other costs $30.

Comments

[john s. gordon:]

canada exports a lot of stuff in addition to oil - commodities: lumber, gold, nickel, newsprint, etc. since speculation has unwound in all commodities, no wonder the loonie has suffered.
> jack

2008 Dec 08 08:17 AM

[Pipo:]

Jim Rogers said in a conference recently that the Canadian Dollar was the best managed currency in the world.

jimrogers-investments....

2008 Dec 08 08:29 AM

[beabaggage:]

Canadian Banks are the best capitalized in the world, It's Life Insurers have AAA/A++ ratings while ours fall and are under watch for review. ManuLife bought a ton of timberland a few years ago cheap. They avoided the subprime derivative mess we are all in.
CN has no budget deficit and if you look at your chart, there is a nice double bottom on it.
Flood of safe money in TBills at some point back into commodities and continued depreciation of the US $ w make CN$ even more valuable. another person recently wrote a comment on Gold that made a good point- the world has 6Bil people and only 2bil have even heard of investing in commodities. Thus CN strong position with SAFE country assets backing it will make the Loonie stabilize and rise as the world economy turns, so it may be a good time to get into CN stocks, not US ones, which are bargains for sure. Many on my HOT list to add for 2009 when I do my IRA investment.

2008 Dec 08 08:56 AM

[Steven Ward:]

Canada's political problems do not seem to be easily resolved. Harper wants fiscal responsibility and the majority in Parliament don't.

The well managed Canadian dollar could go the way of the Dodo if the majority has its way.

2008 Dec 08 01:28 PM

[jimmy46:]

ANOTHER STUPID SHALLOW BLOG

WHAT ELSE DOES CANADA EXPORT?????????

2008 Dec 08 01:51 PM

[Greg Pinelli:]

Shallow comments like "the Canada's political problems do not seem easily resolved.." don't tell us anything. At the end of the day EVERY sovereign nation state looks to its own interests. The loonie will fare well because oil/nat gas/timber always have value and the market is not going to be stagnant forever.....
The US$ will have it's reckoning against gold...

2008 Dec 08 09:45 PM

[NOWHEREMAN:]

Yes, Jimmy, please look at my recent response to the most inane post I have ever seen.

Georealist said that all of the world's currencies were depreciating "simultaneously" but couldn't tell me against what, when I asked. Instead, he changed the subject, altered what I had said to someone else and included BHP which has no gold exposure whatsoever onto posts devoted to discussing Gold.

When Georealist uses the terms "kissing butt", what he really means is that I don't ridicule others with opinions differing from my own.

But I will respond when provoked.

2008 Dec 09 02:03 AM