Friday, September 28, 2007

Why is the Dollar Slipping? Oil.

Last week I pointed out that the Canadian dollar was at parity with the U.S. greenback, but when the market closed today our dead presidents were actually worth less than our neighbor's "loonies." Wonder why that is?

The generally weak American dollar has helped, of course, but another reason for the rise of the loonie (the nickname of our dollar) is oil: "'Among the G-10 nation currencies, the Canadian dollar is used more than any other as a proxy for oil,' Rebecca Paterson, global currency strategist at J.P. Morgan in New York, said in an interview. 'So when oil prices rise, anyone that wants to bet on oil and does not want to play the commodity market turns to the Canadian dollar.'" With the price of oil on the rise, almost reaching its record high today, the dollar has become a currency of choice for investors.

So why is that? Canada's oil reserves are the largest among the G-10 countries and second only to Saudi Arabia among all nations.

That should really underscore how ingrained oil is in the American economy. Not only does it suck when the cost of gas rises at the pump, but the price of oil also has a significant ripple effect that goes well beyond the gas station.

No comments: