Some slight respite from the effects of the strong Canadian dollar might be on the way.
The 40 percent rise in the value of the loonie versus the American dollar since 2003 is partly the result of the meteoric rise in the price of commodities – oil, gold, copper and other metals.
But the commodity price boom may have stalled and contributed to the retreat in the loonie, to about 89 cents US early this week from about 91 US cents in late August.
Because Canada is a major producer and exporter of energy, metals and minerals, its economy and currency are closely tied to commodity prices.
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After its recent peak of more than $77 US per barrel during the summer, the spot price of oil has fallen to near $63 on reduced expectation of supply disruptions and growing U.S. stocks.
Natural gas prices have fallen to two-year lows.
Gold has lost about 20 percent of its value since its recent peak in mid-May.
Copper prices have been hit by worries that global economic growth might slow, reducing demand for metals.
The American economy shows signs of slowing and the implication for Canada is reduced cross border trade. Some analysts look at these factors and predict a weaker Canadian dollar in 2007, although not by much.
TD Economics sees the loonie
in a tight range of 87-88 cents in 2007.
But others, like Scotia Economics, see the dollar remaining near 90 cents and slightly higher in 2007.
The direction will likely depend on whether the oil market remains relatively calm and on how the U.S. Federal Reserve views the economy and the need to raise interest rates.
A pullback in the loonie would help raise farmgate grain prices in Canada.
Many agricultural market analysts already expect that once the effect of harvest pressure dissipates, grain and oilseed prices will rise this winter, due to tight wheat supplies and strong bioenergy demand for corn and soybeans.
Some relief on the currency side would add welcome momentum to that trend.
