Monday, December 15, 2008

Sterling goes Loonie

It's been another year to forget for Queen Elizabeth II.

Not only has she had to rein in extravagances as the family budget was squeezed but her face has been on the front of two currencies that have massively depreciated, namely the British pound and the Canadian dollar (commonly called Loonie).

But there is more in common between Canada and the UK than a monarch.

Both countries also export large amounts of crude oil. This has resulted in each currency closely tracking the price of oil as well as each other.

The close correlation between the Loonie and Sterling is an inconvenient fact for those who believe that government failure is at the heart of the pound's weakness.

To guage whether the collapse of the pound or the Loonie will continue, it would be worthwhile to monitor the direction of both over the coming days and weeks. Should there be any deviation between the two, it might signal a move in either direction.

Of course, you could just look at the price of oil, since that will determine where both are going. My guess is up, but maybe not immediately.

Either way, the Queen should have a better year in 2009.