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Date: December 19, 2007
Subject: G&G Newsletter - "USD vs. CAD Dollar"

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G&G Associates
Tax & Financial Consulting Services

It's a Battle Royal Between the Canadian and U.S. Dollar

by Sean Hyman

Last Friday, two countries released their employment reports. These reports generally come out on the first Friday of each month.

In one corner, we have Canada. At the other side of the ring, we have the United States.

Canada took the first punch because their report comes out at 7am EST whereas the United States payroll report comes out at 8:30am EST.

Nothin' But Good News for the (CAD) Canada got off to an early start with an exceptional employment report. The Canadians added over five times more jobs than economists estimated. To be exact, Canada added 42,600 jobs, when economists expected 8,000. So that was a very good sign for the Canadian economy and Canadian dollar. But wait, this could mean that Canada may not lower rates aggressively. If so, this would be another improvement for their currency.

However, Canada's unemployment rate did tick up a notch to 5.9% vs. 5.8% formerly. So the Canadian dollar (or "CAD" in trader's speak)_took a minor blow. However, overall, the report was very positive for the CAD.

Next we anxiously awaited the fate of the U.S. dollar as the clock hit 8:30am EST.

The U.S. payrolls report had mixed results. On one hand, the payrolls beat estimates slightly (94,000 vs. 85,000 expected). However, the market typically views this as being somewhat "in line," with expectations.

The numbers would have to be far and beyond expectations to receive a favorable response. But wait, last month's payroll numbers were revised downward by 48,000. So when you consider that, it was a net loss.

But then the unemployment rate came out at 4.7% vs. 4.8% in October. Even going down 1% is a good sign. So in the end, it was a mixed bag for the U.S. dollar.

Canada Clearly Wins the Employment Report Match so the CAD won out this month's round with the U.S. dollar.

After all, Canada blew out its numbers by over five times whereas the U.S. just squeaked out ahead of estimates. The U.S. actually lost when you consider last month's downward revisions.

How to Tell Who's Winning in the Currency Markets Currencies are neither strong nor weak until they are directly compared with one another. So when you compare the U.S. dollar directly to the CAD you can see how strong or weak both currencies are.

However, next year look for Canada's economy to slow down, right along with the United States. The reason? The U.S. is Canada's major trading partner, so when the U.S. buyers can't buy as much Canadian goods, Canada's economy also slows.

It's not a question of which economy's currency will slowdown. The question is which one is slowing down more. Because in currencies, it's not which currency is doing badly, it's which currency is doing worse. It's not what's doing well; it's what's doing better.

So in this case, Canada's economy is slowing at a slower pace than the United State's economy. That makes the Canadian dollar strengthen against the U.S. dollar and thus brings the USD/CAD pair downward. Look out next year to see who wins the next round.

Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
877-817-6031 toll-free
866-361-3872 toll free fax

"The great end in life is not knowledge but action."
Thomas Henry Huxley


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