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China sends loonie flying above $1.10
TAVIA GRANT

Globe and Mail Update

November 7, 2007 at 11:39 AM EST

China's move to diversify its $1.43-trillion (U.S.) in foreign reserves caused a collapse in the U.S. dollar Wednesday and sent the Canadian currency hurtling over the $1.10 mark.


The loonie soared to $1.1024, up almost two full cents from Tuesday's record close of $1.0852. The currency's astonishing gains over the past year are the largest in its history.

The latest jump came as the greenback fell the most since September against the currencies of its six biggest trading partners, according to Bloomberg. That, in turn, sent oil prices above $98 a barrel and gold surging above $845 — making Canada's commodity-linked currency all the more attractive.

“All of these developments are like catnip for the Canadian dollar, which has quite simply broken free from any restraints,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., in a note.

Oil Future Dec'07

The loonie's gains on Tuesday came as oil prices approached a record $96 a barrel amid tight supplies.

Gold Future Dec'07

Gold meanwhile continued is rise as well, surging above $845 an ounce.

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The Canadian currency was also higher against the Mexican peso Wednesday, though it slipped against the euro and the yen. The loonie has risen against the euro this year, but not as dramatically as it has against the greenback.

The move came one day after another huge move in the loonie, this time sparked by Bank of Canada comments that suggest interest rates won't be cut. Deputy Governor Paul Jenkins also refrained from expressing much concern about the currency's appreciation.

“It was hardly the forceful condemnation some might have feared, and the Canadian dollar quickly resumed appreciating as soon as Jenkins left the podium,” Bank of Nova Scotia analysts said in a note.

The loonie topping $1.10 prompted Ontario Premier Dalton McGuinty to call on the Bank of Canada Wednesday to lower interest rates.

The turbulence in global currency markets comes as the European Central Bank and Bank of England decide on interest rates. Both are expected to remain on hold.

China delivered a one-two punch to the dollar as a top lawmaker suggested a bigger role for the euro in its hoard of foreign reserves and a central banker said the dollar is losing its global currency status.

The euro hit a record high above $1.47 following remarks on Wednesday by Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, China's parliament, pointing to diversification of the country's reserves.

“In terms of the structure of our foreign exchange reserves, we should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies,” Cheng told a financial forum.

“For example, in the current foreign reserves structure, I mean the bonds we bought, the euro is appreciating against the yuan while the U.S. dollar is depreciating against the yuan. So we should make a balance between the two,” Mr. Cheng said.

Mr. Cheng's position gives him influence in Beijing, where he holds a rank equivalent to vice premier. However, he does not have real authority over financial matters and has been known to speak on a range of subjects, from the stock market to foreign acquisitions, on which he does not control policy.

Glenn Maguire, an economist with Societe Generale in Hong Kong, estimated that China holds 65-to-70 per cent of its reserves in dollars and a much smaller share in euros.

“If China were indeed to balance its FX reserve holdings between the dollar and the euro, this would represent a massive selling of dollars and buying of euros,” Mr. Maguire wrote.

Xu Jian, vice head of the People's Bank of China's Communist Party school, twisted the knife by saying recent surges in gold and oil were a reflection of the dollar's loss of standing.

“The U.S dollar's global currency status is shaky and the creditworthiness of dollar assets is falling,” said Mr. Xu, who noted he was speaking in a personal capacity.

He said he expected the dollar to weaken further in 2008 under the impact of the gaping U.S. trade deficit. That could push the price of gold to $1,000 an ounce from a 28-year peak of $840 scaled on Wednesday, Mr. Xu said.

With files from Reuters and Bloomberg.

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DanS.

on the plus side hopefully this will help our exports....

zimmy61

It's going to kill ours. At least 75-80 percent of them.

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DanS.

I'm not so sure....The Canadian Hockey teams will continue to export all of their good players...

Heretic

The communist Chinese government are just taking their war against the free world to a new battle theater; one where the other side gladly colaborates in its own destruction. This isn't even the tip of the red-star-rising ice berg.

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"Enough!!" -so rang Barack Obama's voice off the walls of Mile High Stadium

Question

I never understood financial things(no investments or anything), and always viewed the market as being rigged and riding on thin air......, stringing everyone out on a false promise, etc.

I thought the market was maybe due for a 2,000 point correction the other day, but I'm always wrong.
Who knows, maybe it won't totally collapse, maybe 'THEY' has figured out a way to hood-wink us all again.

I also truly believe that 'market collapses' are 'Timed' to World Wars(curiously).
I'm thinking what happens in a Big City when the Economy Tanks?
This isn't like 1929, this is Fully Armed/Full Metal Jacket ....life in modern times(and I don't think things will be pretty if things get bad).

I know the Germans were looking for a 'Good Leader' when their Mark crashed, so I wonder what will happen in the U.S. during Hard Times?