Tuesday, October 23, 2007

That Darned Fine Print: The Dollar-Loonie Exchange Rate

Note from KPC friend, RL:

Maybe economists like you can make sense of what is "normal" price
appreciation and what is "abnormally quick" changes in exchange rates?

The markets responded sharply in the first day of trading after these
comments, but then traders realized that - whether or not the pace of
the change was in line with historical norms - the equilibrium price was
near where the dollar-looney
traded at on Friday!

I wonder whether the current stock market volatility is also "abnormal"
since, from what I can tell, it also is not consistent with historical
norms.

Does the leader of the Bank of Canada not read the fine print that says
that historical performance is not indicative of future returns?

3 comments:

Robert S. Porter said...

People in Canada are ignorant of history, the future and everything in between.

Jayson said...

What Dodge said was: "The recent round of appreciation has been abnormally quick and doesn't seem to be related to the domestic factors ."

The domestic factors part is important, because he is concerned that the fundamentals don't support the Loonie's rise and that it's being driven by speculation.

The ongoing mystery is appreciation of the Loonie against non-U.S. currencies when not much has changed, and the worst fear is that its driven by North American investors who previously invested in the U.S. looking for another, somewhat familiar, place for their cash.

Or maybe it's just the price of Oil...

santia said...

I like Dinar.and its revaluation of currency.
Dinar