Soaring soybean prices and a lofty loonie partly offset each other Oct. 10, limiting gains in the canola futures market.
Between Oct. 6-10, the Canadian dollar gained more than one cent US and at times hit a 9 1/2 year high.
The loonie gathered strength on news that domestic employment and housing starts were better than expected, but the real reason was the U.S. dollar’s weakness.
The greenback fell against all major currencies as traders focus on America’s double deficit in both budgetary and current accounts.
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The U.S. is spending more than it takes in due to reduced revenue from tax cuts and increased spending on security. On the current accounts side, it imports far more than it exports.
In mid-September, the Group of Seven finance ministers made statements interpreted to mean that the United States had won support from other countries to allow the U.S. dollar to weaken, giving relief to its hard pressed exporters.
That set off the latest round of devaluation.
Canadian bank economists now say that a 75 cent loonie is not a flash in the pan. Avery Shenfeld, senior economist at CIBC World Markets, said that if the Bank of Canada does not drop interest rates, the loonie could be 78 cents US by December.
By the time you read this, you’ll already know whether the central bank took the opportunity to drop rates at its meeting Oct. 15.
Meanwhile, Derek Burleton, senior economist with TD Financial Group, said that while the U.S. greenback will be on the defensive, the pace of depreciation will taper off a lot over the next 12 months.
He thinks the recovering American economy will support the currency. Also, if the euro and yen climb too fast, he thinks the European and Japanese governments will intervene to cushion the impact on their economies.
The appreciating loonie has already hurt Canada’s farmers. Alone, it has weakened grain prices by 19 percent from what they were at the same time last year.
The impact will linger because it is unlikely that the loonie will again plunge to the low 60s in US cents.
The signal this gives to all Canadian exporters is to either become more efficient, or to shift production away from commodities toward more profitable processed or specialized products.
