Canadian Dollar: Caution Warranted

OTTAWA — Canadian housing prices were still about 10% overvalued at the end of 2012, the IMF said on Thursday, and it warned that authorities may have to intervene a fifth time in the mortgage market if personal debt levels rise further. The International Monetary Fund, in its annual report on Canada, also said the country’s currency was between 5 and 15% higher than warranted by long-term economic fundamentals, lifted in part by commodity prices and the country’s safe-haven status for investors.

Our latest round-up shows that many housing markets are still in the dumps THE house-price boom that preceded the financial crisis was remarkable for its scope and scale. With a very few exceptions, there seemed only one way for prices to go: up. Things have been more diverse since, and our latest review of house prices is a picture with dramatic chiaroscuro. A brightening outlook for America stands out against the darkening tones of the beleaguered economies on the periphery of the euro area.

Measured in inflation-adjusted terms against other currencies, the dollar remains quite weak from a long-term historical perspective, but on the margin it is improving somewhat. This is consistent with monetary policy being "highly accommodative," as the FOMC today noted in its statement, and with a general lack of confidence in the U.S. economy's ability to thrive relative to other economies.

For the first time Canada’s loonie will join the U.S. greenback, euro and yen as official reserve currencies in International Monetary Fund data. The IMF said the Canadian and Australian dollar will be included in its Composition of Official Foreign Exchange Reserves from the third quarter. They’ve previously been included in an “other currencies” category in the COFER reports.

OTTAWA • Many trade critics have taken aim at the high-flying loonie for clipping back the growth of Canadian exports. But that stagnation has more to do with the products and direction of exports than their costs, the Conference Board of Canada said Tuesday as it called for a major re-think of how and where this country’s products should go in the future. Focusing on the value of the dollar as a key cause of Canada’s changing trade patterns is counter-productive

By Calafia Beach Pundit: Measured in inflation-adjusted terms against other currencies, the dollar remains quite weak from a long-term historical perspective, but on the margin it is improving somewhat. This is consistent with monetary policy being "highly accommodative," as the FOMC today noted in its statement, and with a general lack of confidence in the U.S. economy's ability to thrive relative to other economies. (click to enlarge)

By Calafia Beach Pundit: No matter how you look at it, the dollar is very weak - very close to its all-time lows. If the value of the dollar says anything about the world's confidence in the U.S. economy, the message is quite pessimistic. The only good thing to be said is that there is a lot of bad news that is priced into the dollar. It might be tough for things to get much worse. (click to enlarge)

All major Canadian exports including energy, autos, agriculture, forest products and machinery-and-equipment collapsed in the latest report. Canadian analysts are shocked by the news. I sure am not. For my reason, look at happenings in China, a huge recession in Europe, and even a recession in the US that surprisingly few have even figured out yet.