Slipping dollar no catastrophe
Judging by the snippets on most newscasts and daily papers, you could easily get the impression that Canada has a weakling for a currency.
The Canadian dollar slipped below 68 cents (U.S.) for the first time ever last week. It has been falling in relationship to the American greenback since about this time last summer.
On June 15, the dollar was again trading in record low territory and several Bay Street analysts said they expect it could lose another penny or two in coming weeks.
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The loonie’s fall might raise concerns about the Bank of Canada trying to stabilize it by raising interest rates. But many analysts doubt the bank will do that.
The Canadian dollar’s drop is not so much a case of weakness here but of strength in the United States, coupled with deep financial problems in Asia and Russia.
Those guys in the red suspenders who trade currencies are moving money out of Asian and other emerging markets and putting it into U.S. dollars.
That has the U.S. dollar appreciating against almost all the world’s currencies.
For example, not long ago the Australian dollar was almost equal to the Canadian dollar. Last week, it dropped to 59.18 cents (U.S.), a reduction of 1.77 cents from the week before.
Meanwhile, of 18 major currencies, only the British pound has held its value better than the Canadian dollar.
Canada might be at a slight disadvantage because currency traders look at Canada’s large interest in lumber, steel and coal and speculate that commodities will face a tough time if Asia settles into a long recession.
But overall, the Canadian economy is doing well.
And there is almost no evidence of mounting inflation, the one factor that Bank of Canada governor Gordon Thiessen has said he will try to control with interest rates hikes.
The Canadian dollar’s drop has good and bad implications for the agricultural economy.
On the bad side, imported goods such as machinery become more expensive. And rule out a cheap holiday south of the border.
On the other hand, a lower dollar boosts returns on the sale of grains and livestock.
For example, grain prices are dropping largely because of the growing prospect of good crops in the U.S. Those prices would be even lower if the loonie wasn’t falling.
