Canada Dollar Plunges on Job Losses, U.S. Rate-Rise Speculation

http://www.bloomberg.com/apps/news?pid=20601082&sid=asza3wG0bq90&refer=canada

Summary:
Since unemployment has been happening, the Canadian currency was dropped from near an eight months high. Traders predict that the U.S Federal Reserve may increase the interest rates. An economist, Meny Grauman announced that the loonies have been overdone. The Canadian currencies might reach and equal to U.S. Also, Bank of Canada believed the unprecedentedly rapid rise in Canadian dollar would fully offset the improvement of economic conditions. In Bloomberg survey, it showed that the unemployment rate rose higher than their prediction. U. S. has lost 504000 jobs in eight months and it was the highest jobless rate since 1983; however, a Chief currency strategy in TD Securities Inc, Shaun Osborne believes the confidence in a rebound would rise. In the interest-rate bets, traders started to price in chances that fed may lift interest rate in the recession eases.

Connections:
Ch6 talks about purchasing power and short investment. Purchasing power is to derive its value from its ability to be exchanged for goods and services in the future. Especially, cash serves as the medium of exchange in every economy and currency which would lose its value by the economy changing. International traders might be directly affected by the currency changing. They would have less profit because of the changing rates. Many people were losing their job because of the high interest rates that make the traders not willing to make any short investment.

Reflection:
Traders should try to use a unit-of measure assumption that all transactions should be measured using a common unit. This produces valuing items in terms of purchasing power; cash is measured at its face value rather than by any other method. However, exchange rates are determined in the foreign currency market. The changes in purchasing power of foreign currencies by allowing the dollar value of the foreign currencies to rise and fall with the changes in exchange rates.