Tuesday, October 13, 2009

A Theory on Canadian Dollar Against U.S. Dollar


Today is October 13, 2009, the day after the Canadian Thanksgiving Monday. This morning the loonie (Canadian dollar) rises again against the greenback (U.S. dollar). One CAD (Canadian dollar) is worth above 0.97 USD (US dollar), i.e. 97 U.S. cents at the open of the market. Speculation has been set that soon the Canadian loonie will be at parity again with the U.S. greenback.

(Most people know that the U.S. dollar is dubbed the greenback. Some may not know that the Canadian dollar is dubbed the "loonie" for the bird, the loon, that appears on the Canadian one-dollar coin.)

Historically, the Canadian dollar was at fixed exchange rate until September 1950 when the Canadian dollar was allowed to float. Soon after that, the Canadian dollar had been at or above parity against the American dollar for most of the 1950s. It hit the highest during that period on August 20, 1957: 1 CAD = 1.0614 USD.

In May, 1962, the Canadian dollar was back to fixed exchange rate again, until June 1970 when it was allowed back to float. The Canadian dollar has been floating ever since then. [See note]

After the Canadian dollar was allowed to float in the year 1970, it only happened twice in the last century that the loonie is at or above parity with the greenback.

The first time was April 25, 1974 when one CAD was worth 1.0433 USD. The second time was two years later in the summer of 1976 when one CAD was worth 1.03 USD. On November 25, CAD was at or above parity against USD the last time for a long, long time.

Ever since, CAD fell against USD, and on January 21, 2002, one CAD was worth 0.6179 USD.

In 2007, the loonie was on the rise again against the greenback. On Thursday, September 20, 2007, the loonie reached parity again. And on November 8, 2007, the loonie hit the highest in history (if my research data are correct): 1 CAD = 1.0935 USD (or 1 USD = 0.9145 CAD).

In brief: CAD was at par with USD in 1974, then in 1976, and then in 2007. And now it may hit parity again.

I have a theory: CAD hit parity (at par) with USD in 1974, and 33 years later in 2007, it did it again. Then again in 1976 ( two years after 1974) it hit parity (at par with USD), and (here’s my theory) 33 years later in 2009 (which is two years after 2007), it will do it again.

Because of the timing difference, I am giving myself some leeway: I predict that CAD will be at or above par with USD any time now till April of 2010. Only time will tell if my prediction is correct.



Source: A History of the Canadian Dollar by James Powell, published by the Bank of Canada in December 2005.


No comments:

Post a Comment