Last Updated on Monday, 29 March 2010 07:20 Written by admin Wednesday, 24 March 2010 07:10

Is the Canadian Dollar overvalued? David Allard, writing at castanet.net has this to say about the valuation of the Canadian Dollar …

“From a technical perspective, the Canadian dollar has a lot of strength and momentum supporting it. In the last year, it has risen from 85 cents to a high on Friday morning of 99.35 cents, however finishing the day lower on more worries about the global recovery. The current price has held above the 50 and 100 day moving averages for quite some time now and both relative strength and MACD are positive. Technically, the Canadian dollar is bullish and has been for the last year, despite the odd dip below it’s 50 and 100 day moving averages.”

Don’t be too quick to buy Canadian dollars though, the 2010 Big Mac Index shows that the Canadian dollar is actually overvalued against the American Dollar.

“What should the Canadian dollar trade for relative to the U.S. dollar? The 12-month forecast from RBC is $1.12 and from Scotia it is $1.05. Despite this forecast, RBC wrote one of the negatives is that the Canadian dollar is 16.4% overvalued on a PPP basis. According to The Economist “Big Mac Index”, the Canadian dollar is 13% overvalued.”

Click here to read the rest of this story.

Last Updated on Thursday, 18 March 2010 12:07 Written by admin Thursday, 18 March 2010 12:07

Seeking Alpha has once again published investment advice based on the 2010 Big Mac Index and ETFs that track the currencies in the Big Mac Index. In short, the Big Mac Index indicates that some currencies are undervalued and some are overvalued. If you invest long in the undervalued currencies and short in the overvalued currencies, you would profit since currencies tend toward Purchasing Power Parity.

Go long on these currencies:

Chinese Yuan (CYB)
Russian Ruble (XRU)
South African Rand (SZR)
Mexican Peso (FXM)
British Pound (FXB)

Go short on these currencies:

Swiss Franc (FXF)
Euro (FXE) or (long ultrashort EUO)
Canadian Dollar (FXC)
Australian Dollar (FXA)

Click here to see the rest of this article at SeekingAlpha.com.

Last Updated on Wednesday, 17 March 2010 07:06 Written by admin Wednesday, 10 March 2010 04:35

Rob Annabat from SeekingAlpha predicts a rise in the value of the Chinese Renminbi against the dollar. Why? His reasoning is that China is slowly allowing its currency to appreciate against the dollar from8.15 RMB to the dollar in July 2006 to 6.83 to the dollar in July 2008. Incidentally, China claim that they have a floating exchange rate but it it far more likely that they employ some sort of peg. The artificially low value of the Renminbi was to keep Chinese goods cheap and increase the sale of their goods overseas.

The following are from the article “Renminbi / Dollar: A Peg No More?” by Rob Annabat, published in Seeking Alpha on March 10th, 2010.

Although the policy makers in Beijing had been allowing the RMB to slowly appreciate for several years—it was 8.15 RMB to the dollar when I moved to China in July of 2006—the peg was an obvious protectionist move to help stem the flight of foreign buyers of Chinese goods when the Western economies began to edge towards recession. And Western policy makers, who are keen to restore demand within their home markets, have been crying foul ever since.

But perhaps my mornings will once again be graced with some variety and Ben Bernanke can gripe about something else. China’s Central Bank director recently acknowledged the peg as a temporary remedy for the first time since its implementation. Those who are familiar with the subtleties of Beijing’s political signaling will recognize this as potentially preparatory for a loosening of the currency control, which would most certainly lead to the RMB’s continued rise against the dollar, and help to improve the massive trade imbalance between the US and China. Why, you ask, am I so certain that the RMB should rise, as opposed to fall?

There are many arguments, but perhaps the most concise, and certainly the drollest, is the one made by the Economist’s Big Mac Index, which asserts that were all currencies valued properly, a McDonalds Big Mac—which is taken as a homogenous commodity sold in 120 countries—would cost the same in any currency. Noting that a Big Mac sold in the US today costs $3.57, the current price of a Big Mac in China—a mere RMB 12.5 ($1.83)—points to the RMB being undervalued by nearly 50%!

So absent a matching pay raise, it looks like my Happy Meals in China are going to become more pricy. But what more profound …

Click here to read the rest of this article