Posted on 09/20/2007 11:16:35 AM PDT by Squawk 8888
TORONTO — Boosted by high commodity prices and a weakening U.S. dollar, the loonie reached parity with the greenback Thursday for the first time in nearly 31 years, promising to boost the energy and import sectors and give consumers cheaper vacations but spelling more trouble for Canada’s industrial heartland.
The loonie, which has been gaining on its American counterpart since bottoming out below 62 cents in early 2002, has recently been on a spectacular run, up from 95 cents at the start of September and from under 90 cents last spring.
Soaring demand for Canadian commodities, ranging from oil and wheat to coal, potash, nickel and zinc — have helped propel the currency, while a weakening American economy has dragged down the greenback, the world’s most widely held and traded currency.
At 10:58 a.m. EDT, the loonie hit $1.0004, and later traded at 99.86 cents US, up 1.36 cents US from Wednesday.
The last time the dollar was at par with the greenback was Nov. 25, 1976, when Pierre Trudea was prime minister and Rene Levesque had just become premier of Quebec. That high point for the currency signalled the beginning of a long slide for the loonie, as national unity concerns and mounting worries about Canada’s worsening government finances over the next decade or so scared away foreign buyers of the currency.
The loonie began to recover a bit after the former Liberal government began tackling the deficit, but has soared in recent years because of massive global demand for Canadian resources and the solid growth in the economy, especially in the oil-rich West.
“What the story is really saying is that Canadians are getting richer relative to the U.S. and hence Canadian assets are getting richer compared to the U.S.,” said CIBC economist Jeff Rubin.
“It really represents a very dramatic reversal of fortune from what would have happened 10 years ago when our resource economy made us look rust belt compared to the technological dynamo of the U.S. economy.”
The currency had advanced 1.38 cents Tuesday after the U.S. Federal Reserve cut short-term interest rates by half a percentage point, undercutting the attractiveness of the American currency. The loonie was also boosted as crude oil hit new highs solidly above US$80 a barrel.
“It’s been a perfect environment for the Canadian dollar to strengthen,” said Craig Alexander, deputy chief economist at TD Economics.
“You’re getting a stronger Canadian dollar on positive economic news out of Canada, rising commodity prices, improving interest rates spreads and concerns about the U.S. dollar.”
Most forecasters weren’t anticipating the loonie to hit parity with the U.S. greenback at all — much less so soon and so quickly.
The No. 1 reason behind the sudden surge, Alexander said, “is that the U.S. Federal Reserve surprised financial markets by cutting interest rates by half a point at their latest FOMC meeting.”
“That makes the Canadian dollar look more attractive to international investors because it means interest rates in Canada are less below those in the United States.”
The high dollar may make U.S.-made goods cheaper to buy in Canada and is a boon to Canadians travelling in the United States, especially cross-border shoppers and those looking to book winter vacations to Florida or Arizona. Those trips are suddenly much cheaper than they were a month ago.
But the high loonie will continue to put pressure on domestic manufacturers, who have to try to sell goods south of the border at a discount or have been priced out of U.S. markets.
Manufacturers such as lumber exporters, which have not had some insulation from commodity prices and automakers will be particularly hard-hit, as the rising Canadian dollar makes exports less competitive at the same time that the shrinking U.S. housing market is making demand for housing weak.
Tourism in Canada could also be affected, as travel to Canada becomes more expensive to Americans — a drop that will likely ripple through the hospitality industry.
Rubin estimates that the manufacturing sector could see as many as 100,000 more jobs shed over the next 12 or 15 months, calling it the “obvious” loser of the rising loonie.
“It is getting crushed, no doubt about it, we lost a quarter million manufacturing jobs,” he said.
But, he added, “the pain and suffering in the manufacturing sector is nowhere evident when you look at the broad economic numbers.”
While the manufacturing sector has lost 289,000 jobs since late 2002, the economy has created more than one million jobs in resources, construction, services, health care, education and financial industries, leaving the national jobless rate at 30-year lows.
“Even in the province of Ontario, which is after all, the country’s manufacturing heartland, the unemployment rate is at a 20-year low ... the energy sector is basically taking over our balance of payments.”
On the other side of that, importers will win big as the costs of bringing goods into Canada gets cheaper, as will whole sellers — the “middle men” in the economy.
It could also benefit consumers, who will see the purchasing power of their money rise.
But, Alexander warns, the surging loonie hasn’t yet trickled down to consumers.
“It is showing up in some areas like gasoline prices (and) retail areas like clothing and footwear, but broadly speaking, we haven’t seen a significant pass- through yet,” he said.
“Canadians that decide to do some cross-border shopping are benefiting, the increasing popularity of the Internet makes it possible for Canadian to buy things from vendors abroad, and to that extent they can benefit 100 per cent from the appreciation of the Canadian dollar.”
American-dollar weakness was also evident across most currencies Thursday as the greenback slumped versus the euro, the British pound, the yen and Swiss franc.
It dropped to record lows Thursday against the euro, which rose above the US$1.40 level, the highest value for the European currency since its inception in 1999.
The spot gold price, meanwhile, topped US$730 an ounce, trading at US$742.60, up $13.10 on the day. Some foreign exchange analysts in the U.S. have predicted the Canadian dollar could reach as high as $1.05 US if weakness in the American economy persists.
(((.)))
Figure what, exactly?
And American $ are staying here. :)
The anti-trade folks ought to be delighted. The price of imports just went up. The price of exports just went down.
It’s an automatic tariff mechanism, and it seems to be working.
Does that mean I can now spend all those Canadian coins I’ve collected over the years from Snowbirds coming to FL for the winter?.................
I wonder what this’ll do to the “Cheap Canadian Meds” crowd?..............
Figure what, exactly?
Do the math.
Well, if they’ve lost the slightest bit of impetus for Her Heinous’ socialized medicine plans, I’m happy.
Someone should tell the NYS Thruway people. Their booths still had signs up last I knew stating they discount Canadian change.
Oh boy, that really helps. Bumping someone who knows about math.
You fellas just come on down and spend lotsa money, eh?
"Anti-trade" vs. "pro-trade," with the pro-trade folks disappointed that exports will go up? That's so bad it's not even a strawman argument.
I guess he means a conservative government means a strong currency. If you ignore the European socialist governments and their strong currency.
Now all those canadian quarters that those bastards on the Mass Pike have been giving me over the years are actually worth something. Jokes on them...I think.
How ironic is it that George W. Bush may very well end up competing with Lyndon Johnson (another Texan, BTW) as the worst president of the post-WW2 era?
Its not anti-trade....its globalist free trade that is the problem. It doesnt work.
Problem with the economic theories of dead economists is that so much of their theory is based on consumer spending...and not private investment in manufacturing and infrastructure.
Consumers do not print their own money...that money has to come from people willing to invest in things besides paper documents.
“How ironic is it that George W. Bush may very well end up competing with Lyndon Johnson (another Texan, BTW) as the worst president of the post-WW2 era?”
Point taken. But please, when mentioning the worst post WW2 presidents, do not forget Carter. I paid 14% interest on my first mortgage thanks to that dirtbag.
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