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The Canadian Dollar has appreciated dramatically over the
past 6 months compared to the greenback. Economists at TD
Bank suggested in a report dated July 12, 2007 that the strength
of the Canadian dollar will help to limit Bank of Canada rate
hikes through the coming quarters. However, their report also
predicted another quarter point raise to come in September
as a direct result of stronger economic growth and elevated
inflation. TD added that “the strength in the Canadian dollar
should not only help reign in inflation by restraining economic
growth and import prices, but [they] feel it will also limit
the degree to which the Bank needs to hike rates.”
WHAT’S BEHIND THE SORING CANADIAN DOLLAR?
Graph of Canadian $ vs. U.S. $
Struggles of the U.S. Economy: budget and trade deficits
have never been higher
Canada’s economic performance: Unemployment at a 32 year
low, Strong GDP Growth,
Interest Rate Hikes
Rising Commodity Prices (Commodities account for 35% of Canadian
exports)—especially oil (Canada is a net exporter or Oil)
Other notable exports: Nickel, copper, aluminum, and zinc.
WHAT DOES THIS MEAN FOR INVESTING IN CANADA?
Canadian exporters are the major losers when the dollar appreciates
because their products become more expensive relative to their
competitors in other countries. However, many economists suggest
that this may actually benefit exporters in the long run as
they must become more efficient to remain competitive internationally.
The other benefit of the high dollar for exporters is that
any outstanding foreign debts will now be reduced.
Canadian importers are the major winners. They can now import
products at reduced rates due to the stronger dollar.
WHAT DOES THE FUTURE HOLD?
Some analysts are calling for the Canadian dollar to reach
parity with the U.S. dollar by the end of 2007 and possible
surpass the US dollar thereafter.
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A graduate of the Sauder School of Business specializing
in Real Estate Finance. My interest in the stock market has
grown steadily since the year 2000 and I am know sharing my
knowledge and opinions with everyone. Visit my blog: http://www.investcanada.blogspot.com
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Article Source: http://EzineArticles.com/?expert=Stuart_Mcconnachie
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