A few weeks ago, I made a bold prediction about when the Canadian dollar would trade for $1.00 US. As it turns out, the outcome was exactly as I predicted. Not only did the Canadian dollar trade for $1.00 US this morning, it happened almost in the middle of the time frame of March 15 – April 15 that I gave.
It probably sounds like I’m tooting my own horn. That’s not the case at all. First of all, I never expected to be right. Further, I don’t believe that I was right. The outcome matched what I suggested, but that doesn’t prove that the reasoning was sound. All I did was draw some lines on a chart. Here is an updated version:
As you’ll notice, the actual exchange rate dropped below the “bands” that I traced in red. I hadn’t predicted that. But, more importantly, the reason for the movement of the exchange rate likely didn’t match my reasoning.
Suppose, for example, that I predict that the cost of fuel will increase because oil producing nations will decrease their output. Imagine that, instead, demand increases because of cold weather. Gas prices still increase, but can you really agree that my prediction was right? I would say no, because my reasoning was at odds with reality.
In the end, it doesn’t matter whether or not I was right. My profitability in no way depended on the accuracy of my prediction. In fact, my wife and I spent US dollars when the exchange rate was around $0.93. But it was still worthwhile, since the weather in Arizona was so much nicer than the weather at home.