EclectEcon

Last week I pondered the extent to which the Canadian dollar (aka the "Loonie") is a petro-currency and wondered why the US price of a Canuck buck wasn't rising along with the US price of oil.

By the end of the week, the US price of oil had dropped considerably, and the US price of a Cdn$ had dropped by approximately the same percentage, suggesting that perhaps the linkage between the value of a Canadian dollar and the price of oil was stronger than it had seemed for several months. And last Friday I received this from RGE Monitor in its daily report:

Canada: Recoupling?

With 75% of its exports bound for the U.S. (whose economic outlook was revised downward by the OECD), Canada seems hard pressed to avoid the effects of the likely U.S. recession. So far, though, terms of trade gains from a strong loonie have boosted domestic demand and offset rising credit costs, and the export and manufacturing slump. But its vulnerabilities have led the Bank of Canada to cut aggressively (100bps since December), even if less so than the Fed. With Canada one of few countries where inflation – even of food – is slowing, it may continue to ease policy rates in the hopes of cushioning the economy. Take a look at: “Canada Decoupled or Not? External Weakness To Infect Domestic Demand” and “Canadian Credit Market Infected By Global Crunch”