In aber­ra­tion, the Cana­di­an dol­lar (loonie) has been sell­ing for more than the US dol­lar (green­back) since Oc­to­ber 2010, the Cen­tral Bank of T&T con­firmed in an e-mail re­ply to a Busi­ness Guardian query on Tues­day.

Farouk Khan, a re­tired bank au­di­tor (and no re­la­tion to the au­thor of this ar­ti­cle), point­ed out that al­though the US dol­lar is stronger than the Cana­di­an dol­lar in­ter­na­tion­al­ly, in T&T its sell rate was high­er than the US dol­lar's, while its buy rate re­mained in line with in­ter­na­tion­al trends, giv­ing the ap­pear­ance of an un­usu­al­ly wide spread.

The spread is where the li­censed forex deal­ers (main­ly the lo­cal com­mer­cial banks) make a prof­it from sell­ing and buy­ing for­eign cur­ren­cies.

Al­is­ter Noel, a se­nior man­ag­er in the Cen­tral Bank's op­er­a­tions de­part­ment, ex­plained: "For­eign ex­change cur­ren­cy rates, in the do­mes­tic mar­ket, gen­er­al­ly trend the in­ter­na­tion­al mar­kets. There may be slight dif­fer­ences from time to time, main­ly due to the liq­uid­i­ty of the mar­ket in a par­tic­u­lar cur­ren­cy."

He said: "The US dol­lar has his­tor­i­cal­ly been trad­ing high­er than the Cana­di­an dol­lar, ex­cept for the ex­tend­ed pe­ri­od from about Oc­to­ber 2010 to the present, in which the Cana­di­an dol­lar trad­ed reg­u­lar­ly at a pre­mi­um to the US dol­lar. This was main­ly due to the mar­ket recog­nis­ing the bet­ter per­for­mance of the Cana­di­an econ­o­my rel­a­tive to the US econ­o­my and low­er in­ter­est rates in the US. The ma­jor­i­ty of the do­mes­tic for­eign ex­change mar­ket trans­ac­tions per­tain to the US dol­lar (ap­prox­i­mate­ly 80 per cent)."

The cen­tral banker said: "From time to time, the de­mand for the Cana­di­an dol­lar may not be read­i­ly met by the sup­ply held by the deal­ers. Deal­ers would then have to ac­quire the ad­di­tion­al­ly-need­ed Cana­di­an cur­ren­cy on the in­ter­na­tion­al mar­ket, which en­tails some trans­ac­tion costs. This may, there­fore, in­crease the sell­ing rate of the the Cana­di­an dol­lar to a lev­el where it trades at a slight pre­mi­um to the US dol­lar lo­cal­ly. Notwith­stand­ing such oc­cur­rences, the lo­cal for­eign ex­change rates are con­tained by the rates in the in­ter­na­tion­al mar­ket. If lo­cal rates drift too far away from in­ter­na­tion­al rates, ar­bi­trage op­por­tu­ni­ties would arise and trades will oc­cur to bring rates clos­er to the in­ter­na­tion­al lev­el."

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