Friday, May 16, 2008

A High Canadian Dollar Means Low Inflation Paving the Way for Low Interest Rates - Great for Vancouver Real Estate

I know alot of people are feeling the pinch of higher fuel prices, but a high oil price is very good for Western Canada and Vancouver Real Estate in particular.

The Canadian Dollar has been pushed up by high energy prices as the US dollar has sunk because of the Sub-Prime Crisis and their high current account deficit. Canada is the number one exporter of energy to the US and 80%+ of Canada's imports come from the US.

High energy prices push up the Canadian Dollar which makes US imports cheaper which then pushes down inflation in Canada. With low inflation, the Bank of Canada can reduce interest rates thus making Real Estate in Vancouver less expensive for Buyers and giving them an incentive to purchase more Vancouver Real Estate.

I'd love to hear your comments!

Loonie holds above par with greenback

Globe and Mail Update

A strong Canadian loonie was over par with the United States dollar Friday morning, up to $100.34 (U.S.) in early trading, fuelled primarily by high oil prices and generally positive Canadian economic news.

The Canadian dollar opened at 99.92 cents, after briefly nudging above parity overnight, and quickly regained its ground.

“Probably this latest move is just on the back of oil prices moving higher again,” said Camilla Sutton, a currency strategist with Scotia Capital Inc.

As well, she said, “most of the data, with the exception of manufacturing shipments, has been somewhat positive for Canada.”

However, Ms. Sutton did not foresee any major spikes in the near term. The Canadian dollar last traded above par with the U.S. dollar on March 19, when it swung from a low of 98.34 to a high of 101.21 in highly volatile market activity.

“The general sentiment is that we are in this broader range on either side of parity, and we haven't really seen a catalyst yet to break us out,” Ms. Sutton said.

“All in all, we are hovering around parity, but it certainly seems like the Canadian dollar wants to be a little bit stronger than the current levels.”

Still, she added, the “broader six-month range of the Canadian dollar is still very much intact, either side of parity.”

David Watt, a senior currency strategist with RBC Capital Markets, said the Canadian dollar is finally reflecting high oil prices, and a recognition that oil prices are not just moving up because the U.S. dollar is weak.

There is evidence that demand for oil “is still strong enough, despite what is going on with the U.S. dollar,” said Mr. Watt.

Meantime, the U.S. dollar fell against most major currencies Friday.

The euro bought $1.5476, up from the $1.5454 it bought late Thursday in New York.

The British pound bought $1.9479, up from the $1.9451 it bought late Thursday, while the dollar also fell against the Japanese yen, buying 104.75 yen, compared with the 105.26 yen it bought late in New York.

“The dollar is looking slightly weaker on the back of yesterday's manufacturing data but there hasn't been too significant a slump in the greenback so far,” said James Hughes, an analyst at CMC Markets in London.

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