Canadian Dollar Hits Record Low
By Howard Schneider
Canada's 140-year-old currency fell to its lowest level ever against the U.S. dollar today, buoying cross-border shopping trips by Americans but dividing economists here over how aggressively the country's central bank should defend the stumbling loonie.
Adopted in 1858, the Canadian dollar, nicknamed for the bird stamped on its basic coin, has at times reached par with the U.S. currency, and on occasion exceeded it. But in the last 20 years, it typically has been worth about 75 cents and has maintained that general level until as recently as October.
Since then, however, instability in Asian currency markets, falling prices for wood and other staple Canadian exports, and other forces have pushed the Canadian dollar downward.
In trading today, the price dipped as low as 68.79 U.S. cents, below the previous 12-year-old record low of 69.13 cents, before closing for the day at 68.86 cents.
Canadian tourism officials said the fall has sparked a record number of day trips to Canada by U.S. citizens, beginning during the Christmas season. More than 2.1 million Americans traveled to Canada on day trips in November, the most in 16 years. Local retailers also said the weaker dollar has been keeping Canadian customers at home.
"They don't want to pay that $1.44" for a U.S. dollar, said Chris Long, manager of the Dixie Outlet Mall near Toronto.
The effect of the currency's fall on trade between the two countries won't be fully documented for months, economists said. The two nations have the world's largest trading relationship, with more than $1 billion per day in goods crossing the border; in the past, currency fluctuations have added to that, as residents of both countries border-hop for bargains, unreported to customs agents along the loosely patrolled frontier.
Though analysts said they expect that the dollar will fall further, the response of Canada's central bank has been muted. The Bank of Canada has intervened several times to buy Canadian dollars in hopes of stabilizing the price, but has refused to take the step that would more directly arrest the slide raising interest rates.
With unemployment in the country at about 9 percent, around twice that of the United States, and inflation virtually nonexistent, Bank of Canada President Gordon Thiessen said in a speech Tuesday that the emphasis should be on ensuring that Canada's economy continues to grow, even if the dollar continues to slide. An interest rate hike, while perhaps coaxing investors to buy the loonie, would risk slowing down investment in plants, businesses and other job-creating ventures.
Thiessen said that while the Canadian dollar has lost about 4 percent of its value relative to the U.S. currency, it has maintained or gained ground against many other currencies around the world, a fact he said argued against any sudden moves to protect it.
"It is too early to be drawing lessons" from the currency and stock market slides in Asia, Thiessen said, a comment that contributed to the Canadian dollar's continued devaluation today.
But analysts are not saying that the loonie's decline foreshadows tough economic times for Canada. In fact, there is a consensus among many analysts that the country's economy is fundamentally sound, and growing.
Federal budget deficits so large a few years ago that there was fear of a Mexico-style financial meltdown and criticism of the Canadian dollar as the "Hudson Bay peso" have been eliminated, and the government is expecting to run a small surplus this year. The nation's export sector has been strong, inflation is low, and unemployment is decreasing.
"This isn't being driven by the economic fundamentals," said James Olts, chief economist for the Canadian Export Development Corp.
Instead, it is because of global forces both near to and far from Canada. As currencies and stocks fell in Asia, investors looked for a secure place to keep their money, Olts and others said. Though both the Canadian and U.S. economies would be seen as stable, interest rates here are about a percentage point lower than in the United States, drawing investors south.
That difference in interest rates "is underpinning the whole thing," Olts said. "When investors seek a safe haven, both [countries] are equally safe, but when you can get a percentage point higher return . . . you are going to go to the United States."
Sherry Cooper, chief economist for the Nesbitt Burns investment house, said the fall of the loonie may not itself be harmful, but that Thiessen's nonchalance about it, ruling out an interest rate increase, is disturbing.
"It is very dangerous for any central bank to appear to be indifferent to the level of the currency," Cooper said. "They have to make it clear that they are not tolerating devaluation on a continuing basis."
One thing the fall of the Canadian dollar apparently has not affected is travel between Canada and vacation spots in Florida and elsewhere in the United States.
Craig Roberts, of the Visit Florida tourist board in Toronto, said so far the currency fall hasn't dissuaded hundreds of thousands of Canadian "snowbirds" from their annual migration.
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