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Predicting the value of the loonie: flows trump everything

There are two reasons I don’t spend a lot of time reading reports on “fundamental value” for currencies. Firstly, currencies can trade away from fundamentals for years at a time, as we discovered with the U.S. dollar in the late 1990s.

The second reason is that, in attempting to predict currency values, flows trump everything, including fundamentals. Week over week, month over month, the difference between the number of investors, importers and exporters who are selling a currency versus buying it is the main determinant of foreign exchange fluctuations.