Drew Hasselback and Grant Surridge, Financial Post
Published: Thursday, September 20, 2007
A strong oil price and the faltering U.S. economy have enabled the Canadian dollar to surpass the greenback in value for the first time in nearly 31 years.
The Canadian dollar rose as high as US$1.0001 just before 11 a.m. on Thursday -- something that hasn't happened since Nov. 25, 1976.
The dollar fell back in later trading. At 5:23 p.m., it was selling for US99.87 cents.
The Canadian dollar's surge in recent days follows a decision by the U.S. Federal Reserve to slash a key interest rate in a bid to calm mounting concerns over the depth of a crisis in the U.S. mortgage market. Meanwhile, prices for commodities such as oil, gold and base metals -- items found in healthy abundance in Canada -- remain near record levels. The Canadian dollar has risen US5˘ this month alone, a move that caps a surge of more than 60% since the loonie hit a rock bottom value of less than US62 cents in early 2002.
The slump in the U.S. dollar has triggered other economic shifts around the world. Early Thursday, the greenback sunk to a record low against the euro. Also Thursday, gold hit a record high of US$734.85 an ounce on Thursday. Gold is bought and sold in U.S. dollars, so a weaker dollar makes bullion cheaper for foreign investors.
Oil, which powers the economy in Western Canada, continues to sell near US$82 a barrel. One cause of the greenback's drop appears to be concern over remarks by Ben Bernanke, Chairman of the U.S. Federal Reserve, in an address to a U.S. congressional committee on Thursday morning.
In a prepared text of his remarks, Mr. Bernanke said that losses in the subprime mortgage market have triggered uncertainty in broader financial markets. The U.S. Fed cut its benchmark federal funds rate by 50 basis points on Tuesday to 4.75% to help forestall some of the adverse effects on the broader economy that might arise from subprime crisis, Mr. Bernanke's prepared remarks state.
"Recent developments in financial markets have increased the uncertainty surrounding the economic outlook," Mr. Bernanke said. "The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."
The dollar opened the week at US$0.97 and shot up almost three cents versus the greenback, a rise economists attribute to surging commodity prices, especially for oil. One of the factors affecting how high the dollar rises is the markets expectation of what the Bank of Canada will do at its monetary policy meeting in October, said Jack Spitz, director of foreign exchange at National Bank. The loonie is already above the central banks own target level, he added.
While Canadian tourists might enjoy the new-found clout their currency has south of the border, the rise of the loonie is not problem free. Canadian manufacturers are gravely concerned about the currency's strength. Most of Canada's manufactured goods are exported to the U.S., so a higher dollar adds to the cost of the Canadian-built products.
The slumping U.S. economy has also impacted demand from some key Canadian products, such as lumber. The weak U.S. housing market has pulled down lumber prices, and Canadian producers are suffering.
Great for Canadian consumers,good time to go across the border to do some shopping. Also if you go on a vacation you have more money in your pocket.
Bad for manufacturers in Canada . 85 % of our costumers are south of the borther. Bad for the movie industry too.Makes canadian products more expensive therefore less atractive for american buyers.We benefit more from exports than imports.
I guess they won't be shooting as many movies north of the border anymore now that the dollar is at par - no savings!
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Not everything I post or say on foro are necesarily true facts. <- THAT is a fact! :blankstare:
Great for Canadian consumers,good time to go across the border to do some shopping. Also if you go on a vacation you have more money in your pocket.
Bad for manufacturers in Canada . 85 % of our costumers are south of the borther. Bad for the movie industry too.Makes canadian products more expensive therefore less atractive for american buyers.We benefit more from exports than imports.
Anyway, I want to get a digital cam and some Apple products but you have to buy from apple.ca if you're from Canada and shipping costs for a digital cam make up the difference in savings... so
From a worldwide perspective, we'd lose a lot of revenue. The government will end up doing something with interest rates and blah blah blah, our dollar will drop again. We can't afford to lose business with the U.S.
Anyway, I want to get a digital cam and some Apple products but you have to buy from apple.ca if you're from Canada and shipping costs for a digital cam make up the difference in savings... so
From a worldwide perspective, we'd lose a lot of revenue. The government will end up doing something with interest rates and blah blah blah, our dollar will drop again. We can't afford to lose business with the U.S.
It all depends, if you are a Canadian consumer than its good for you cause you can purchase more for your money if you go to the states....
But if you are a busniess mainly manufacturing its really bad, most of our clients are in the states and now they are buying from the states since they can get the same products for the same amount then from us Canadian companies.... Its even cheaper for them to buy from the states becasue they don't have to pay for the shipping cost....
Mixed feelings. U.S. stocks that were purchased some time ago have automatically lost value from the dollar difference. On the other hand it is a great time to buy US stocks.
Exports to the U.S. will certainly be affected but I am not so sure how exports to other countries will be affected considering that foreign currencies are relative to the U.S. dollar.
This is not good for the manufacturing industry... I can see it where I work a lot of people are not happy with the Canadian dollar... we are losing money big time... our main clients are from the US.
A lot of people are also losing their jobs. I feel bad for them, I hope the US economy picks up soon. Or I will have to start looking for another job soon.
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