Dollar hits all-time modern high at market close
Tuesday, November 06, 2007 – 05:34 PM
By: James Munroe and 680News staff
Toronto – The Canadian dollar reached a new milestone by hitting 108.52 cents (U.S.) at market close Tuesday.
Investors are betting that Canada’s economy will continue expanding because of demand for commodity exports.
The dollar has gained about 25 per cent this year, and is among the top 16 most-traded currencies in the world.
The speed at which the dollar is soaring is a little alarming.
“We’ve seen it rise by 25 per cent now in a little more than ten months and it’s never had that kind of run before, ever. And I think it is too far too fast. We haven’t even begun to see the economic impact of the currency’s jump. About half of that jump has come since the start of September alone, and that’s just way too fast a move,” said Doug Porter, deputy chief economist with BMO capital markets.
Analysts point out the loonie is now about ten percent above market value.
The continued weakening of the U.S. dollar and oil prices nearing $97 (U.S.) a barrel have aided the dollar’s rise.
Canada has benefited from rising demand for commodities, including wheat and oil.
The price of oil brushed $97 (U.S.) a barrel today, and there is speculation that some traders and investors will try to push it closer to $100-a-barrel.
There are concerns that oil supplies may not be able to meet demand heading into the winter season.
Loonie and euro up against U.S. dollar, oil and gold continue to climb
The Canadian dollar topped $1.08 US on Tuesday.
Last Updated: Tuesday, November 6, 2007 | 4:40 PM ET
The Canadian Press
The Canadian dollar topped $1.08 US on Tuesday as the greenback continued to lose ground against other currencies as well as oil and gold, a historic hedge against volatile currencies.
The loonie gained more than 1.3 cents, finishing at $1.0852 US.
The euro also reached another record high against the U.S. dollar amid expectations of more interest rate cuts in the United States. The 13-country currency hit $1.4571 US before slipping back to trade later at $1.4554.
Gold rose $12.70 US to close at $820.80 US an ounce.
A key factor in the Canadian dollar’s rise is the price of oil. It gained $2.72 to close at $96.70 US a barrel.
Traders expect further declines in U.S. crude oil stores, and that’s fuelling concerns that supplies may be inadequate going into the winter.
Analysts think some traders and investors will try to push oil prices to the psychologically important $100-per-barrel level this week.
The U.S. currency has been lurching lower since the Federal Reserve cut interest rates by a half point on Sept. 18, followed by a quarter-point cut last week, in reaction to spreading economic anxiety over the subprime mortgage collapse.
‘Incredible’ loonie tops $1.09 US
Economists say run-up will end … but when?
Last Updated: Tuesday, November 6, 2007 | 7:27 PM ET
The Canadian Press
The Canadian loonie broke through another psychological barrier Tuesday, briefly rising above $1.09 US in after-hours trading and raising alarms that the rapid acceleration is both unsustainable and damaging to the economy.
With crude oil closing in on the increasingly inevitable $100 US a barrel era, and other commodities also showing stubborn strength, the Canadian currency had another day for the record books, adding on to Monday’s previous all-time high close to finish regular trading Tuesday in Toronto at 108.52 cents US, up 1.34 cents.
“This is nothing short of incredible,” said Douglas Porter, deputy chief economist with BMO Capital Markets. “I’d like to say we’re nearing the end of the run, but I can’t say that confidently.”
In fact, the Canadian currency continued to head skyward in after-hours trading Tuesday, rising another 0.65 cent US to hit 109.17 cents US at about 5:15 p.m. ET — slightly more than an hour after trading officially ends in Toronto. It later slipped back below $1.09 US.
The currency has been breaking new ground since Friday when it rose above $1.07 US, the highest it’s been since 1950 when the dollar was allowed to trade freely.
The latest surge was credited to an equally impressive run-up in the price of crude oil, up to above $96 US a barrel, and gold prices that surged by over $14 US an ounce, as well as solid returns for other commodities, particularly wheat.
However, there were growing concerns that the loonie’s muscle was not only suspected of being at least artificially enhanced, but also likely to exert some pain to the Canadian economy.
Risks to economy increase
In a speech in New York, Bank of Canada senior deputy governor Paul Jenkins cautioned that despite firm commodity prices and strong domestic demand, “the magnitude of the [loonie’s] recent appreciation appears to be stronger than historical experience would have suggested.”
And given that the loonie’s surge is even stronger than the bank anticipated only three weeks ago, he warned that the risks of damage to the Canadian economy has also increased.
“The combined effect of a weaker U.S. outlook and a higher assumed level for the Canadian dollar implies that net exports will exert a significant drag on the Canadian economy,” he said.
Scotia Capital economist Karen Cordes said she also expects to see a decline in domestic retail sales as more and more Canadians are lured by low prices south of the border.
“Whatever the reasons or sources of the strength, the dollar has a huge implication for Canada and we’re going to start feeling it soon,” she said.
Exporters feel more heat
The sky-high loonie has already caused havoc with exporting sectors, particularly manufacturers and the forest industry that depend on selling products into the United States.
Last week, Canadian Auto Workers president Buzz Hargrove again called on Bank of Canada governor David Dodge to match the 75 basis point interest rate cuts in the U.S. as a way of reigning in the loonie, which he said was affecting not only car exports, but also the entire auto parts sector.
Cordes also said she believes the bank should begin cutting rates early next year, though she doubted it would. A rate cut would make foreign investments into Canada less attractive, deflating demand for the Canadian currency.
U.S. analyst Dennis Gartman, who was among the first to predict the loonie’s ascent past parity as far back as five years ago on the simple premise that Canada “has stuff the world wants,” said the Canadian currency is now on such a roll that it may be difficult to reverse quickly.
“The Canadian dollar is like an aircraft carrier and you can’t stop that on a dime, it’s got a lot of momentum,” said the author of the influential Gartman Letter out of Virginia Beach. “It’ll stop when one of your major exporters closes shop and says he can’t compete anymore.”
But Gartman disagreed with critics of the high dollar, saying that in the long run a strong currency is good for Canada because it will force businesses to compete in the world despite the high currency.
Still, he said he is not “long” on the dollar and predicts any rise above $1.10 US will be unsustainable.
