June 2, 2007 in Business

Canadian dollar hits 30-year high

Associated Press The Spokesman-Review
 

TORONTO — The Canadian dollar breached 94 cents for the first time in 30 years on Friday and analysts are speculating it will be worth as much as the struggling U.S. greenback by year end.

Known as the loonie because of the loon pictured on the $1 coin, the dollar traded at 94.18 cents in early afternoon trading — the highest it has been since July 1977.

It hit an all-time low of $61.79 on Jan. 21, 2002.

The latest surge comes after CIBC World Markets economists predicted the Canadian dollar will be worth as much as the greenback by the end of the year. That last happened in November 1976.

The CIBC report cites an expected rise in Canadian interest rates and stronger-than-expected economic growth, along with hot commodity prices and an “avalanche” of corporate takeovers that require foreign acquirers to deal in Canadian dollars.

“Between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of (acquisition) deals, the Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback,” CIBC World Markets chief economist Jeff Rubin said.

Meanwhile, the U.S. Federal Reserve looks set to cut rates late in the year, reducing the attractiveness of the American dollar, Rubin said.

Bank of Montreal economist Sal Guatieri said the Canadian dollar could surpass the U.S. dollar in the coming years.

“The Canadian dollar is not considered a weakling currency as it was when it was trading at the 60 cent range, so that negative stigma attached to the weak loonie four or five years ago could completely evaporate if we do hit par with the U.S. dollar and that might spur our currency to even greater gains,” Guatieri said.

Equipped with increased purchasing power, Canadians are shopping for everything from cars to furniture and electronics, both at home and across the border. Their freer spending boosted retail sales by 1.9 percent in March, a Statistics Canada report showed. Travel by Canadians in the U.S. and internationally has also risen.

While this increase in living standards may seem attractive, not everyone is happily throwing back vacation-resort margaritas with news of Canada’s rising dollar.

Canada’s manufacturing sector used to enjoy that the struggling currency made their goods less expensive in the U.S. and internationally. Now their return on investment is lower due to a less favorable currency conversion, and analysts predict some manufacturers could eventually be priced out of global markets.

“Contracts they put in place early in the year that they thought were worth a million dollars are now worth 10 percent less, so when they get paid, they’re going to be paid a lot less than they contracted for,” said Jayson Myers, senior vice president and chief economist at the Canadian Manufacturers and Exporters.


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