Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, May 28, 2005

Currency Fluctuations and Oil Prices

Stephen Poloz, in his weekly commentary, argues that the Canuck buck has become a petro-currency, and that explains the big drop in the value of the Loonie relative to the U.S. dollar.

What happened in mid-March to turn things around? Oil prices began to falter. Oil inventories have been in a persistent uptrend. Combined with recent economic signals from around the world that economic activity may be moderating, oil prices have dropped by more than 10% from mid-March highs of just over $56. Rising oil prices can put quite a dent in economic growth in the oil-thirsty U.S., while other major economies are less vulnerable. Some, like Canada, actually stand to gain in the near term from high oil prices, so dropping oil prices mean a rising U.S. dollar, and weakness across many other currencies.
The implication is that the Canuck buck has lost value relative to the U.S. dollar over the past month or so because oil prices have fallen. It isn't really a new argument, but it is well-presented.
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