Canadian Dollar Trades Equal to U.S. for First Time Since 1976
By Haris Anwar and Theophilos Argitis
Sept. 20 (Bloomberg) -- Canada's dollar traded equal to the U.S. currency for the first time in three decades, capping a five-year run on the back of booming demand for the nation's commodities.
The Canadian dollar rose as high as $1.0008, before retreating to 99.87 U.S. cents at 4:16 p.m. in New York. It has soared 62 percent from a record low of 61.76 U.S. cents in 2002. The U.S. dollar fell as low as 99.93 Canadian cents today. The Canadian currency last closed above $1 on Nov. 25, 1976, when Pierre Trudeau was Canada's prime minister.
The move to parity marks a milestone for a currency dubbed the loonie for the bird that adorns the nation's one-dollar coin. Parity also symbolizes Canada's emerging clout in a world economy increasingly short of the energy, grains and metals the country produces.
``It's a long time since those heady days,'' said Frank McKenna, 59, deputy chairman of Toronto-Dominion Bank, the country's third-biggest lender, and a former ambassador to the U.S. ``Canadians should understand that this is a badge of confidence in our country.''
Canada, the world's eighth-biggest economy, has benefited from rising demand for copper, gold, wheat and oil from neighboring U.S. and emerging economies such as India and China. The country is the world's largest producer of uranium, the second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Canada is also the world's second-largest exporter of wheat, which rose to a record this month.
The Reuters/Jefferies CRB Index of global commodities has risen 69 percent since January 2002 on growing demand from China and other Asian economies, boosting the value of Canadian exports and triggering investment in new mines and other resource projects. Canada's economy will be the fastest-growing among the Group of Seven nations in 2008, with an expected pace of 2.9 percent, the International Monetary Fund estimated in April.
Foreign investors are rushing into the country to tap into the boom, boosting demand for the Canadian currency. Canadian companies have been involved in announced takeovers worth $287 billion this year, surpassing the record $275 billion for all of 2006, according to data compiled by Bloomberg. The dollar almost gained a full cent on July 12, the day Rio Tinto Group offered $38.1 billion for Montreal-based Alcan Inc., the world's No. 2 aluminum producer.
Canada, which has run 10 consecutive annual budget surpluses, is using the world's growing reliance on its commodities to bolster its stature globally.
Prime Minister Stephen Harper has called the North American country an ``energy superpower,'' and asserted sovereignty in the Arctic, pitting Canada's claims against Russia and the U.S. Harper also has sought to increase Canada's influence in Latin America by signing trade deals and touting the country as an alternative energy source to Venezuela.
``Parity heralds Canada's reemergence on the world's economic stage,'' said Michael Gregory, a senior economist at BMO Capital Markets in Toronto.
To be sure, the stronger Canadian currency comes at a cost to some areas of the economy, from lumber producers in British Columbia to carmakers in Ontario. The stronger dollar makes their products more expensive abroad.
``We've got a speculative bubble in the Canadian dollar,'' said Stephen Jarislowsky, chief executive officer of Montreal- based Jarislowsky Fraser Ltd., which manages about $62.6 billion. ``Parity will be an unmitigated disaster for Canada. It spells -- in the not too distant future -- a major recession, at least in eastern Canada if not the rest of the country.''
The Forest Products Association of Canada, an Ottawa-based lobby group, estimates 110,000 jobs have been lost in the manufacturing industry since 2002, almost a third of them in the forest sector.
The surging currency also reflects U.S. dollar weakness against all major currencies. The U.S. dollar has posted losses over the past five years against all but one of the 16 major currencies tracked by Bloomberg on concern about the nation's budget and trade imbalances, and a housing slump.
``We are going to feel the effects of the downturn in the U.S. housing market, because we are an exporter of housing materials,'' Finance Minister Jim Flaherty said in an interview in Ottawa. ``But overall we have a strong Canadian economy, our economic fundamentals are the strongest in the G-7. So we are well positioned to weather this storm.''
So far, growing demand for commodities and other industrial goods produced in Canada is more than offsetting the slump in manufacturing. Canada has generated 32 consecutive quarters of current account surpluses, with receipts from outside Canada exceeding payments sent abroad by C$187 billion ($187 billion) over the period. The jobless rate remains at a 33-year low of 6 percent.
``In a resource economy, and Canada is still largely a resource economy, you'll find the exchange rate will move up and down with commodities,'' said Neil Camarta, senior vice president of oil sands at Petro-Canada, the country's third-biggest oil and gas producer.
The country is also lessening its dependence on the slowing U.S. economy, with U.S. shipments accounting for 76 percent of exports in July, down from 85 percent in 2002. Exports to the U.S. fell 3.3 percent in July, yet were up 29 percent to the European Union and 65 percent to China.
And while the U.S. Federal Reserve cut interest rates on Sept. 18 to revive growth, Canada's central bank raised rates in July and may increase them again this year to stem inflation, futures contracts show.
``Currency markets are a good indication relative to the country,'' said Richard Waugh, chief executive officer of Toronto-based Bank of Nova Scotia, the No. 2 bank. Waugh predicted in a March interview that the currency would reach parity.
For McKenna, the move to parity reminds him of a time when he was a boy in the 1960s, selling strawberries to U.S. tourists on the roadside in his native New Brunswick. Back then, the Canadian dollar was worth more than American money.
``It was difficult to make change,'' he recalled. ``So we used to give them a break (and) treat the currencies at par.''