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Article Analysis - Essay Example

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'Loonie' Slips on Oil Patch Date Title: 'Loonie' Slips on Oil Patch Authors: Matthew Walter and Karen Johnson Media Source: The Wall Street Journal. Date of Publication: 2013, February 1 'Loonie' Slips on Oil Patch Walter & Karen in the article “'Loonie' Slips on Oil Patch” takes an analysis of the situation currently facing the Canadian dollar commonly known as “Loonie” in relation to the oil crisis faced by the country…
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Download file to see previous pages... Targeting the investors and potential investors in the Canadian stock exchange, the article warns them of the imminent crisis that has already started taking shape on the economy of Canada. It also targets the policymakers who are supposed to take into account the pitfalls and offer solutions of how the situation can be improved. According to them, an investor who opts to hold their investments in the Canadian BMO Capital Market Authority or any investment banks in the country risk making losses from their investments. They provide evidence supporting their hypothesis which indicates a losing trend that the Loonie has been facing in the recent years. Basically, the subject of their argument is the contribution of the oil crisis to the poor performance of the Canadian dollar in relation to other currencies and the U.S. dollar. Other contributing factors to soring the situation have been discussed, which include low buying of the government bonds and the decreasing demand for Canada’s triple-A-rated sovereign debt. The poor performance of the loonie against other currencies prompted Walter & Karen to write this article. Most importantly however, it was the poor sale of the country’s crude oil that made the issue more serious warranting their reference to the poor performance of the currency. The fact that Canada’s oil prices have been performing poorly in reference to other oil producing states is evidence to this. Trading at about $ 65 a barrel, the Canadian oil poorly performs against international oil prices. In the article, 'Loonie' Slips on Oil Patch Walter & Karen explores the influence of Canada’s oil reserves on the performance of the Canadian dollar. While the global crude oil prices have remained competitively high, the poor price of the Canadian oil proves to be a liability to the country’s economy and exchange rate. The major contributing factor of this trend is the boom in the U.S. oil in the Northern American region. A barrel of the Canadian oil trades at only $65 dollars, while the international market prices stand at $115 per barrel. Contrary to other currencies that move along with the changes in the oil prices, the loonie has been facing a downward performance against the dollar, shedding off 0.5% this year. The biggest disadvantage of the Canadian currency, points out experts is over reliance on petrol exports. The weak currency is expected to remain weak so long as the oil prices remain low. Effects of the poor prices of the oil have not only negatively influenced on the currency performance, notes Walter & Karen. The shocks of this have been felt by the economy, negatively affecting the annual economic growth which the central bank forecasted to drop from 2.3% to 2%. Moreover, the prices have also contributed to a widening trade deficit, reaching up to C$2 billion. As experts continue loosing hope in the recovery of the dollar, more investors keep pulling out of the market. Data indicates so, as bonds have been facing a decreasing trend since June of last year, hitting the lowest point in November. As more people shy from bond buying that was the biggest source of income for the country’s funds, the face value of the currency seems to be overvalued. The oil ...Download file to see next pagesRead More
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