When the Loon Soars Higher than the Eagle

October 24, 2007 09:15 AM
by findingDulcinea Staff
The U.S. dollar has been trading at all-time lows, dipping to $1.44 against the euro and below parity with the Canadian dollar, colloquially known as the “loonie,” for the first time in history.

30-Second Summary

The dollar dipped to an all-time low against other hard currencies such as the euro, the Canadian dollar and the Japanese yen on Monday, Oct. 22.

On Sept. 29, for the first time in the history of the two countries, the Canadian dollar eclipsed the U.S. dollar in value. The U.S. dollar has been slowly closing back in on the loonie; however, as of Oct. 23, the Canadian currency is still trading higher.

The value of the dollar against foreign currencies has been falling for several years. Part of the pressure comes from the “current account deficit” (the dollar value of U.S. imports in excess of the value of U.S. exports) of $800 billion per year.

The more recent drop may be attributable to the sub-prime mortgage crisis, which was spurred on by homeowners being unable to make mortgage payments, due to rising adjustable interest rates and falling housing prices. The consequent fear of a recession has already led to lower interest rates, which lessen demand for dollars by foreign investors.

A weaker dollar could translate into higher prices for internationally traded goods such as oil and gold, because investors see these commodities as safe investments in a time of instability. Also, foreign producers are dismayed because Americans will tend towards buying cheaper U.S.-made items.

Moreover, given the lower spending power of the dollar, Americans will be less likely to travel abroad.

Higher gas prices may also keep Americans closer to home, as well as increase shipping costs, which would significantly push up the costs of imported goods.

Headline Links: Steady decline

Opinion & Analysis: Reasons for the fall

Background: How does this affect daily life for Americans?

Reference Material: Forex at your fingertips

Related Topics: The sub-prime mortgage crisis


Most Recent Beyond The Headlines