Friday, August 03, 2007

Bank of Canada says Loonie has ideas above its station

It's great to hear that the B of C's pet economists are in line with what every exporter, small business owner, and blogger with a liberal arts degree have been saying for months. Of course, the central bank's people use more charts and formulae to say it.

TORONTO (Reuters) - The Canadian dollar is overvalued given current commodity prices and interest rate levels, according to calculations based on a March 2006 Bank of Canada model for currency forecasting.


IDEAglobal said the model suggests the Canadian dollar's appropriate short-term value should be around C$1.09 to the U.S. dollar, or 91.74 U.S. cents, given oil prices of about $75 a barrel and a Canadian overnight interest rate of 4.50 percent.
The currency finished at C$1.0534 to the U.S. dollar, or 94.93 U.S. cents on Thursday, down from last week's 30-year high of C$1.0340 to the U.S. dollar, or 96.71 U.S. cents. U.S. crude futures were around $77 a barrel.
The push above 95 U.S. cents has brought a flurry of predictions that the currency could soon hit parity with the greenback.

The Bank of Canada doesn't think it's justified. The U.S. Federal Reserve doesn't think it's justified. Observers and those affected most by the exchange rate don't think it's justified.

And yet, here we are.

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