Last week was a wild ride in the markets -- an election, a $10 drop in the price of oil, and amazing jobs reports from both the United States and Canada. The effect of each on our dollar must be outlined. Once done, it will become clear that the loonie has incredible support and some experts fear $1.10 to the greenback looks probable.
On election night, when CBC announced that Liberal leader Michael Ignatieff was losing his own riding, the loonie made an obvious move upward. Once again, when it was announced that the Conservative party had secured a majority government, the loonie hit a high for the night. It is clear from that night's action in the currency market that participants believe that a Tory government is dollar positive. This provides some long-term support for an above par level.
Next, during the week, the market reacted to mounting evidence that developed economies are in for a long tough slog back up. Markets don't price in information as they get it. They tend to wait until the scales tip decisively one way or another. If anything, the markets have been late to realize what the average person on the street has known for a while. It's long overdue, but we'll take it for however short it lasts: oil fell almost $18 on the week with a $10 drop on Thursday alone. Unfortunately, it only dented our dollar by a little over a penny and some experts fear this blip is temporary.
Finally, Friday morning brought news Canada and the U.S. added more jobs than forecasted, sending the loonie back up even while oil remained subdued under the $100 mark.
The combination of a majority government and strong economy far outweighed the fall in commodity prices. Since the first two will endure for quite some time and some believe the latter is temporary, get ready for the next leg up past the previous high of $1.055 U.S. Canada could mimic the Australian dollar and hit $1.10 U.S. Unless we begin to get U.S. dollar support in the broader market, this move could happen sooner rather than later.
