Originally Posted by parnel
If $60/70oil is the new reality longer term than it will be difficult to knock the canuckbuck off stride. Also if commodity prices for base metals stsy high than it is even less likely the buck will go down and it could go above par.
Oil price will come down when China gets itself in a recession. Whether that will happen in a year or five or ten is not a guess I am prepared to make.
Commodities will fall when the US fall into a recession. Not if, when.
That being said, I believe par value for the CDN $ is around 82/85 cents US due to our social infrastructure and our big underpopulated Country.
Some time back there was a study that claimed for Canada's manufacturing costs to reach the US level, the CAD would need to reach parity with the USD. Canadian health care actually *helps.* Look at what large US organizations have to spend on health insurance, not just for current employees, but also retirees.
This said, I would argue that trying to define a long term equilibrium rate makes no sense: it's a moving target. As long as both US deficits lead both debts accumulate, there is a downward trend for the USD. And vice-versa for the CAD.
Plus, we tend to forget that a good deal of the economy is not really market-driven (such as, most prominently, the automobile sector). Which makes it largely exchange-rate neutral. Look at how prices compared between Canada and the US when the CAD was 60 cents, and what it's now. You'll see that prices in Canada are roughly the same in CAD now and then. That is, they did not drop, so cars now tend to be more expensive on this side of the border. While the opposite was true five years ago.