The currency exchange market has been in quite a mood lately, spelling trouble for those traveling around the globe, or working abroad and trying to send home money.
In the last few months, I’ve watched in horror as my home currency, the Canadian dollar, rose up to parity with the US dollar, and is now sitting at 1.05 US. The Mexican peso, which is the currency my unfortunate salary is denominated in, is pretty much tied to the greenback, so it declines in tandem with the US dollar.
Canadian TEFLers in Japan are unhappy as well as they watch their previously handsome salaries get whittled away as they try to pay back student loans back home.
What’s to blame for all the changes lately? Let’s ask the experts…
According to Time magazine:
Reason for the drop: 1) recent withdrawal of U.S. investments for profit-taking, 2) an increased demand for U.S. goods, which boosted Canada’s imports above, exports in September, and 3) the U.S. election. “All the Republican talk of economy,” said one Canadian observer, “brought back confidence. Withdrawal of securities for profit reasons has been going on for some time . . . but the election undoubtedly speeded it up.”
FXstreet is saying:
The big question for the whole 2007 for the dollar and forex market is whether Federal Reserve will cut the interest rates. The speculations start since the autumn of 2006 and still are the most actual news moving the forex market. A week ago most of the traders forecasting Fed rate cut to the end of 2007 at least once. This means at the end of the year US interest rates at 5.00%. But this week the situation is not the same. The concerns for the US inflation bring new rumors that Fed will keep the interest rates unchanged. Even some analyzers predict rate hike during 2007 if the US inflation is not set on control. The second most important event moving the forex market is the US economic growth. The latest fundamental release shows slowing down of the world biggest economy. But the key element is how slow is the US economy and is it temporary or sign of serious slowing down. Just when are giving the right answer of these questions the dollar should start recovery.
Gah…that economic babble always bores me.
The NY Times blames the Bush administration:
How did the Fed lose room to maneuver? The answer is rooted in the Bush administration’s misguided economic policies.
Over the last several years, America’s imbalances in trade and other global transactions have worsened dramatically, requiring the United States to borrow billions of dollars a day from abroad just to balance its books.
The only lasting way to fix the imbalances — and reduce that borrowing — is to increase America’s savings. But the administration has steadfastly rejected that responsible approach since it would require rolling back excessive tax cuts and engaging in government-led health care reform to rein in looming crushing costs — both, anathema to President Bush. It would also require revamping the nation’s tax incentives so that they create new savings by typical families, instead of new shelters for the existing wealth of affluent families — another nonstarter for this White House.
Stymied by what it won’t do, the administration has gone for a quicker fix — letting the dollar slide. A weaker dollar helps to ease the nation’s imbalances by making American exports more affordable, thus narrowing the trade deficit.
Whatever the reasons, I’m faced with going home this Christmas to Canada, bearing either Mexican pesos or US dollars…neither of which is worth very much these days in Canada, making it that much more of an expensive vacation. Maybe if I just carried around oil instead of money…
Tags: Guy's Corner