Another chapter in the Eurozone crisis and another major swing in the value of the Canadian dollar.
Over the past few weeks, the loonie has:
•dropped $0.03 against the U.S. greenback;
•dropped 2.9 yen against the Japanese currency;
•gained $0.03 against the Australian dollar; and
•gained $0.017 against the euro.
The moves appear to correlate with all the bad news coming from the cradle of Western civilization. A second election coming in June, runs on Greek banks and more rumours of Greece potentially leaving the euro have generated more volatility, not just in the stock markets around the world but also in global currencies.
There are many reasons why the loonie’s relative value has shifted so much in recent weeks against most of the world’s currencies. Investors worldwide appear to be moving their money to places perceived to be safe havens.
What’s interesting, however, is how manic-depressive all markets continue to be. Here we have investment professionals collectively managing trillions of dollars worldwide, trading on the slightest hint of good or bad news anywhere around the world to make a return.
Aside from making it difficult for exporters to make money (by causing speculation-driven commodity and currency fluctuations), that trading strategy seems to run counter to the idea that investors should be emotionless and rational. Headlines daily cite “fear” and “uncertainty” as a key motivation for a triple-digit drop in a stock market index or the value of the dollar or any other commodity.
In effect, trades are being based on gut feeling and rumour, or, God forbid, insider information leaked to someone somewhere in the global investment network, leading to a surge in trades that have no apparent basis in fact.
This isn’t to say everything is corrupt and illegitimate. Undoubtedly, most average investors get only a sliver’s worth of information that investment professionals need in today’s split-second-paced trading world.
But the growing knowledge and information gap is a concern. Volatility, it appears, is here to stay in the markets. But, if Greece is any indication, the problem might spread socially. •
