Loonie Slips on Oil Patch - Essay Example

? 'Loonie' Slips on Oil Patch 'Loonie' Slips on Oil Patch 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. Through the analysis, they offer evidence supporting their argument on why the Loonie has been facing a poor performance. In painting a vivid picture explaining the various pitfalls that have befallen the dollar, the article helps the reader to understand the issues facing the economy, fusing them together to offer the most accurate information about the situation. 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 price is one example of the contributing factors to the poor performance of the currency. Indeed, the economy of Canada is financed largely by oil exports. The authors argue that this is the major contributing factor to fall in the value of the Canadian currency. Having had critically evaluated the various effects of the poor currency to the economy, the authors sought to caution the investors in the imminent crisis that already has taken shape in the country. However, the question as to the factors contributing to the poor petrol prices has not been addressed. Investors are likely to be faced with a dilemma in deciding the most appropriate time to get their investments back to the stock exchange. Moreover, policy makers are left with the question, what is the most appropriate measure to hedge against the problem? The article, an analysis of the situation facing the Canadian currency is an explanatory research that seeks to explain the relationship between poor oil prices and the poor currency performance of the dollar. Although the authors did not carry out an extensive research on the issue, they managed to collect substantial evidence to support their claims. The article uses statistical data which is presented in form of percentages and currency figures. The authors’ choice of using statistical data is that it can be tested and analysed. Additionally, the data was obtained from other sources such as the central bank of Canada, investment banks and experts. This makes it more valid and trustworthy, apart from being reliable. Walter & Karen opt for previous data collected by different researchers and organizations to back their arguments. They also opt to rely on information provided by experts in the field of financial analysis to draw inferences and back their data. According to Walter & Karen (2013, p. 1) “The recent performance of the Canadian dollar, also called the "loonie," stands in contrast to the performance of other currencies that tend to move in tandem with oil prices” which shows the poor performance of the Canadian currency in relation to other currencies. This gives the article a formal tone. Further, the analysis and arguments presented by the authors give the article a serious mood. They argue that “The Bank of Canada estimates that low oil prices shaved about 0.4% off Canada's annualized growth of its gross domestic product in the second half of 2012” indicating the seriousness of the matter under discussion. The absence of simplicity in the language of the authors gives the article a serious tone, as the issue under discussion too warrants such a tone of reference. Interestingly, the casual use of words by the authors in the article makes it captivating, regardless of the topic under discussion. No complex words have been used in the text, yet the play of words by author makes the topic under discussion humorous. Reading through the article, one gets the impression of the variety of words used by the author to make it formal, yet others” float” is humorous, and interesting too. Phrases like “Canada has a petro currency,” to mean that the currency of Canada largely depends on the oil prices, shows the different styles of writing used by the author, who prefers to use different totally new words to explain a normal phenomenon (Walter & Karen, 2013, p. 2). The importance of evidence in any form of writing cannot be underestimated. Not only does it give the article reality and a sense of truism, it also gives an author a fertile ground to base their argument. The choice of evidence by the authors gives the article of thought in their arguments. They back their arguments with evidence, either in form of data or analysis from an expert. Mostly, they opt to analyse their evidence, to clarify their thoughts. Additionally, the use of paraphrased and quoted information shows the depth of their research into the matter under discussion. This is an indication that not only did they used an extensive study in their work and collecting materials for their topic of study, but also carried out interviews to seek other people’s views regarding the issue. Through these arguments, readers can choose to believe in the information contained in the article, without many arguments. Walter & Karen (2013), while analysing the various implications of the poor petrol prices to the Canadian currency leaves little to doubt that they chose the best method of raising their arguments and arriving to conclusions. The article 'Loonie' Slips on Oil Patch shows the numerous implications of over reliance by a country on a single form of income to run the economy. True is the argument that a country’s economy largely benefits from the export products. Indirectly however, Walter & Karen warn that avoidance of over reliance on a single form of export goes a long way in saving a country from a financial crisis. In the event that one of the incomes fails, the economy could successfully rely on the other form of income. For example, they state that “Canada has a petro currency and the fact that [Canadian] oil prices are off so much will keep the currency weak” implying on the importance of having alternative sources of income Walter & Karen (2013, p. 2). From their arguments, the audience can deductively draw inference on the article and conclusively arrive to their conclusions. More importantly however, the investors in the Canadian stock exchange are likely to benefit from the information provided in the article. Those investors who hold their money in the Canadian stock exchange are likely to withdraw their investments. The would-be investors are too likely to be influenced by the article, which essentially are likely to change their mind and thus shy away from investing. Policy makers too are likely to find the article useful in laying the important strategies that are likely to improve the situation faced by the Canadian currency. Personally, the article has significantly influenced my way of thinking about the form of investments that I am likely to make in future. The factors affecting prices at the stock exchange, either economic or political are important to put into consideration before undertaking any form of investment. Wise investors will put into consideration the safety of their investments by considering the future returns of the investments. Reference Walter, M & Karen J. (2013, February 1). 'Loonie' Slips on Oil Patch. The Wall Street Journal Top of Form Read More