Posted on 09/28/2007 10:56:54 PM PDT by bruinbirdman
A strong currency reflects booming commodity exports and sound public finances. But not everyone is cheering.
IT HARDLY came as a surprise when, on September 21st, the Canadian dollar crossed a symbolic threshold and overtook its American counterpart in value for the first time since 1976. Since January 2002, when Canadians needed C$1.61 to buy a greenback, the loonie (so nicknamed after the aquatic bird depicted on the dollar coin) has been pushed up by world demand for Canada's commodities. Yet even hard-bitten currency traders cheered out loud as the loonie inched towards parity, and then beyond. David Watt, a currency strategist at RBC Capital Markets, likened the moment to the decisive seventh game in an ice-hockey final. The feeling is that “Canada is back”, he said.
The celebrations went beyond the trading rooms. Newspapers trumpeted the vigour of a currency once derided by Barron's, an American financial weekly, as the “northern peso”. Students held parity parties, as did some business groups. Shoppers jammed border crossings last weekend, confident of finding bargains on the other side. There were complaints, too, especially from manufacturers. But they were drowned out by nationalist glee. “When the [Canadian] dollar was trading just above 60 [American] cents, people thought there was something wrong,” says Darrell Bricker of Ipsos-Reid, a polling firm. “Now it seems that we are doing something right.”
That and good fortune: the industrialisation of China has boosted the world price of Canada's exports of oil, gas, minerals, metals and farm products. But the country has also done its housework: ten years of federal budget surpluses and a current-account surplus contrast with the twin deficits in the United States. In the end it was the “subprime” mortgage woes south of the border that elevated the loonie over the sickly greenback (or should that be the “Yankee lira”?).
But a strong loonie is not problem-free for Canada, whose economy, like that of Mexico (see article), is tightly integrated with that of the United States by the North American Free-Trade Agreement. Ontario's carmakers, tied into American supply chains, were already struggling with high energy costs and a weak market across the border; the province's pulp and paper exporters face similar difficulties. According to Jayson Myers, who heads an association of manufacturers and exporters, “the real problem isn't the [exchange] rate, it's the rapid rise”.
Or perhaps it is Canada's weak productivity and unambitious businessmen. Company profits are healthy but investment remains sluggish. Because of the exchange rate, the price of capital goods fell by 10% over the past year, but purchases rose by only 5%, according to Philip Cross of Statistics Canada.
In the 1990s Canadian politicians laboured to rebrand their country as glitzy and high-tech. There are a few such companies: Research In Motion, an Ontario company, makes the BlackBerry; CAE of Montreal produces flight simulators; Bombardier manufactures regional jets. Now the mainstay is the familiar one of natural resources, especially oil and mining—an “underground economy”, quips Mr Cross, though he adds that much of this is technologically sophisticated. In the west, where many of the natural resources lie, manufacturers who cater to local markets are doing fine. For several years, the economy has looked distinctly lopsided: the GDP of energy-rich Alberta expanded by 6.8% last year, compared with Ontario's 1.9% and Quebec's 1.7%.
I guess the loonie's parity with the greenback is good. If you can get your hands on a loonie you can buy some medical care in the U.S.A.
yitbos
The CDN dollar didn’t overtake the US dollar because if you look at the CDN$ you’ll see it hasn’t moved too much against the Euro. What’s happened here is that the US dollar is taking a tumble. A nine trillion dollar debt coupled with an annual 1.5 trillion dollar trade deficit will do that, you know.
On the upside, this will help prop up the Florida real estate market and tourism trade.
yitbos
August CPI down .1%. No articles. Sounds like news to me.
Quite a story but it's all due to the oil gold and commodities surge. If commodities were low like 6 years ago the Canadian dollar would be down. The crude calculus is that Canada acts like an African 3rd world nation that is only good for raw materials exports. Which it exports to China/Asia where busy intelligent people make stuff out of these raw materials. So Canada is going backwards and China is going forward
But commodities are up and may be up for decades? Canada's oil/gas/energy wealth papers over it's socialist sins. This allows idiot leftists plenty of running room to import illiterate Somalis and other 3rd worlders to dilute Canadian culture and overwhelm the Canadian capitalists who make these Canadian riches possible. Lots of other socialist idiocy also has room to grow due to high commodity prices.
Good the loonie’s worth more now...makes it a tad easier to pay for your ridiculous taxes to the government to keep your health care going, eh?
The Economist is in London, and until Friday, Canadian publications expressed mostly doom and gloom about the rising loonie. There’s been no mention of “nationalist glee” before now. I’m more than a little suspicious. London publications have been criticizing the USA and urging us to prop up our dollar. There’s some apprehension about England’s lack of production and the rising pound, IMO.
Here’s another facet of the situation as seen within Canada. Alberta is more conservative (believe it or not) than Ontario and BC. Alberta has the oil. The eastern and extreme western provinces don’t want Alberta to increase its power. Along with California, the other two provinces are soaking Alberta through environmentalist fronts.
Perceptive.
In the '80s Condo Rice advised Reagan about USSR. She said they were a basket case held up only by the hard dollars they got by selling oil (remember oil price under Carter). Reagan brought oil down to a about $10 - $12 USSR collapsed.
EUrosocialists will suffer under the EUro (stealth capitalist currency) and cheap buck (their exports suffer, US exports boom). Same can be said of Canasocialists.
yitbos
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