The Performance of the U.S. Dollar in 2007

In response to the articles Is the Value of the Canadian Dollar related to Oil Prices?, Will the Canadian Dollar Hit Par? and Are Recent 2007 Movements in the Canadian Dollar Related to Oil Prices? reader Barry writes:

That R2 value is quite low. There is little relation between the rise of the Canadian dollar and oil prices. Quite frankly, this has been going on pre-9/11. In fact, I would venture to suggest that the current CDN $ is a reflection of overall decline for the past 5-6 years of the US economy. IMO the earliest things will change is post-Nov US election.

I would not say that there is little relation between the two, given the three above articles, but Barry is correct in pointing out that the relationship for the year 2007 is not particularly strong.

Barry has an interesting point, though - is the rise in the value of the Canadian dollar vis-a-vis the U.S. dollar largely due to factors within the United States (as an aside, I would not say the U.S. economy has declined in the last 5-6 years).

But this begs the question - are other currencies gaining on the U.S. dollar as fast as the Canadian dollar? To determine this, I downloaded daily 2007 data (January 1, 2007 to June 13, 2007) for 5 exchange rates:

1. Canadian dollar to U.S. dollar
2. Euro to U.S. dollar
3. British pound to U.S. dollar
4. Japanese yen to U.S. dollar
5. Mexican peso to U.S. dollar

While the Mexican peso is not a major world currency, I included it because Mexico is next door to the United States and it major oil exporter to the U.S.

From January 1, 2007 to June 13, 2007 how has each currency fared vs. the U.S. dollar?

1. Canadian dollar - up 9.21%
2. Euro - up 0.05%
3. British pound - down 0.04%
4. Japanese yen - down 2.90%
5. Mexican peso - down 1.66%

It would appear that the Canadian dollar's gain in 2007 is not due to a fall in the overall value of the U.S. dollar, as the USD is virtually unchanged against the pound and euro and is, in fact, up against the yen and peso.

I graphed each currency's performance against the U.S. dollar, starting each currency at a base value of 100 at January 1, 2007. Since April the Canadian dollar has appreciated sharply, while none of the other currencies have, though the peso did rise during this time as well.

It would appear that the recent movement in the Canadian dollar is not due to the general weakness of the U.S. dollar, rather it is due to factors specific to Canada and the Canadian-U.S. relationship.