Saturday, March 13, 2010

High Loonie boon to travelers to the US

However as the article also notes the high loonie will also hurt exporters. While travelers to the US will benefit so will Canadian consumers since the cost of imported goods should decline as our dollars will purchase more in other countries. This is from the Star.


A boon to March break travellers

Emily Mathieu

Canada's manufacturers and exporters are likely to feel the squeeze after the Canadian dollar crept closer to parity on Friday following stronger-than-expected employment numbers.

"It's much more doubtful whether the Canadian economy can really live with a currency quite that strong on an extended basis, at least not until commodity prices are a lot higher than they are today," said CIBC chief economist Avery Shenfeld.

"We have already wiped out some of the manufacturers and exporters that had a tough time competing with a strong exchange rate."

On Friday, Statistics Canada reported that 60,000 full-time positions were created in February, with gains in business, building and other support services, manufacturing, health care and social assistance. The gains were offset by a loss of 39,000 part-jobs the same month.

Following the labour report, the loonie touched a 20-month high, briefly tapping 98.47 cents (U.S.), the highest level since July 2008.

The currency closed at 98.20 cents, up 0.57 of a cent.

Matthew Strauss, senior currency strategist with RBC Capital Markets, said the Canadian dollar is expected to move to parity during the first half of 2010.

"It seems we might even get there before the end of the month."

For cross-border shoppers and Canadians going south for March break, the strong loonie means better deals. But, for Canada's exporters and manufacturers, finally showing signs of life after dismal job losses, the surge could have a significantly negative impact.

"The rising dollar is a major challenge for Canadian exporters," said economist Erin Weir, with the United Steelworkers union.

Earlier in March, the Bank of Canada said it would maintain its target for the overnight rate at 0.25 per cent and the bank rate would also remain unchanged at 0.50 per cent, with the deposit rate remaining static at 0.25 per cent. The bank said, conditional on the current rate of inflation, overnight rates are expected to hold until the end of the second quarter of 2010.

Strauss said the central bank is expected to raise rates fairly aggressively, but it is not clear at what pace.

With files from The Canadian Press

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