Look at this chart of the Canadian dollar in U.S. dollar terms:
Pretty impressive. I’m going to San Francisco next week to cover the Canola Council of Canada’s annual convention and this’ll make my expenses shrink a bit. I’m going to be paying with Canadian dollars for U.S. dollar expenses, so in that light, let the Loonie soar!
Of course, it’s much worse on the farming side of things. A higher U.S. dollar tends to mean lower commodity prices, and the crop commodities aren’t free from that. So now that the Loonie is above 98 cents, where’s it going? If you read this blog enough, you’ll see that I don’t believe anyone out there is very good at FX (foreign exchange) predictions. There are just too many factors involved in the country-to-country relationships that cause FX rates to move for anyone to reliably get them right, methinks. But that doesn’t stop lots of folks trying to do it, and I’m not saying there’s no one out there who can do it. An economist I know has a friend who claims he regularly makes money in his basement trading the FX market on his laptop. (That reminds me a bit of the day traders in the 1990s who quit their boring old jobs and just traded stocks. Most ended up back in the job market after the market began slumping 10 years ago this week.)
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But there’s one easy way to be right most of the time: jump on a trend and say it’s going to continue for a while. Say this gravely and seriously, and people will marvel when you’re right. You’re likely to be, because trends tend to trend. That’s why they’re called “trends.” There’s really not much skill in sucessfully predicting a trend will continue. And if you don’t make the call before the trend begins, what have you really achieved? I joked a couple of months ago about an award I want to give out to analysts who quickly jump on a trend and pump it up. I would call it the Asta Award, after my pet miniature Schnauzer who always wants to be in the lead, so whenever you change direction on a dog walk he races to get back out in front and look like he’s the leader. This followed an interview I heard with a Canadian big bank economist who had confidently predicted a rising-to-parity Loonie in late December as it rose, then reversed himself in late January as it fell – both times sounding super-confident.
No doubt lots of the commentariat will now jump on the strong Loonie trend and confidently predict its continuation.
Here in Canada CIBC World Markets made a Loonie call this week. And they got a heck of a lot of publicity out of the call. On Wednesday, after the Loonie had been trending higher for a couple of weeks, they set targets of the Loonie at $1.02 by September, before a late-year setback to 97 cents. And straightway they seemed to be right: the Loonie jumped from 97 cents to 98 cents by the end of the week. Golly, how godlike a call!
I dunno. Is that really such a big call? To say that in the next six months the Loonie will go up by four cents? And then settle back to exactly where it is today? Doesn’t seem to me that this is really putting the private parts on the anvil for the market to whack at. It’s a pretty tame call, in keeping with a continuing trend. But it certainly got a lot of attention around the country and, as a CIBC customer, I’m glad they’ve proven themselves to be adept at getting noticed. (Full disclosure: I bought CIBC stock in the past for a family member. It was a good investment. That position was sold two years ago.) A Canadian big bank got a lot of attention a couple of years ago from its calls for $200 per barrel oil. I wonder how that prediction worked out. I’ll have to check a chart some time . . .
The Loonie story has taken off this week. Early this a.m. as I watched Bloomberg TV, Canadian-born host Erik Schatzker talked about the rise of the Loonie and how impressive it was. So our rising buck is getting attention outside the borders.
It’s probably pretty safe to bet on the trend continuing. That’s no doubt what everyone soon will be calling for, if the trend continues. But if I had FX exposure in my business – like many farmers do – I’d look at hedging the exposure rather than speculating on it. Because if you look at that chart above, it makes one thing very clear: currency volatility is big these days, and it’s been catching everyone by surprise.
How confident are you in anyone’s call?
