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Energy exports lift loonie
Currency hits highest mark in 14 years
Published: Thursday, December 15, 2005
The Canadian dollar temporarily surged to 87.5 cents US Wednesday, sparking speculation the currency's strength could become an election issue for the Liberals in voter-rich Ontario, whose export oriented manufacturing sector is most vulnerable to a stronger loonie.
"Prime Minister Paul Martin has so far run a campaign tailored to appeal to the urban Ontario market," Nesbitt Burns economist David Watt mused in a note to investors. "That is a region that has faced the sting of manufacturing job losses, with more likely to come.
"Union leaders, including the PM's new buddy (Canadian Autoworkers president) Buzz Hargrove, might begin to rattle the chains with more conviction in coming weeks," he speculated, as the currency briefly touched 87.50 cents US before slipping back to close at a 14-year high of 86.82 cents US.
Hargrove has publicly stated it would be best for voters to elect another Liberal minority government, with the NDP holding the balance.
Dale Orr, an economist with Global Insight, agreed a "higher dollar is worse for Ontario than any other province and is one of the things that makes it more difficult for the auto folks."
"And anything can become an election issue," he added.
However, unlike 14 years ago when the then-Tory government was under pressure to order the Bank of Canada to cut interest rates to reduce the value of the currency, rising rates now are only one of several factors pushing the loonie higher, Orr noted, adding he hoped the currency wouldn't become a political football.
Warren Jestin, Scotiabank chief economist, said he suspects the loonie will soon reach or surpass the 90 cents US mark.
But he, too, said there's nothing the government can or should do to rein in the currency, which is being driven higher by the solid fundamentals of the Canadian economy, including budget and fiscal surpluses, strong global demand for Canadian resources, and money-market nervousness the U.S. dollar could go substantially lower.
And the latest runup in the currency was fuelled by more good news on the Canadian economy and bad news out of the U.S.
Statistics Canada reported energy sales boosted exports to record levels in October, more than offsetting an increase in imports and nudging Canada's trade surplus even higher.
"Energy is now Canada's largest export sector, weighing in at $9.2 billion," it noted. "Energy has surpassed the machinery and equipment and automotive sectors, which had exchanged the title of largest export sector back-and-forth for many years."
Exports rose a further one per cent to a record high $40.2 billion, while imports rose 1.2 per cent to $33 billion, leaving Canada with a $7.2-billion surplus, up marginally from the upwardly revised surplus the month before.
The trade report suggested firms here took advantage of the strong dollar to boost their imports of productivity enhancing machinery and equipment.
Giving the loonie an added boost was news out of the U.S. of an unexpected increase in its trade deficit, which in part reflected the increase in energy imports from Canada.
"The main contributor to the rising shipments to the United States was the increase in natural gas exports, as natural gas prices continued to climb," Statistics Canada said.
Currency hits highest mark in 14 years
Published: Thursday, December 15, 2005
The Canadian dollar temporarily surged to 87.5 cents US Wednesday, sparking speculation the currency's strength could become an election issue for the Liberals in voter-rich Ontario, whose export oriented manufacturing sector is most vulnerable to a stronger loonie.
"Prime Minister Paul Martin has so far run a campaign tailored to appeal to the urban Ontario market," Nesbitt Burns economist David Watt mused in a note to investors. "That is a region that has faced the sting of manufacturing job losses, with more likely to come.
"Union leaders, including the PM's new buddy (Canadian Autoworkers president) Buzz Hargrove, might begin to rattle the chains with more conviction in coming weeks," he speculated, as the currency briefly touched 87.50 cents US before slipping back to close at a 14-year high of 86.82 cents US.
Hargrove has publicly stated it would be best for voters to elect another Liberal minority government, with the NDP holding the balance.
Dale Orr, an economist with Global Insight, agreed a "higher dollar is worse for Ontario than any other province and is one of the things that makes it more difficult for the auto folks."
"And anything can become an election issue," he added.
However, unlike 14 years ago when the then-Tory government was under pressure to order the Bank of Canada to cut interest rates to reduce the value of the currency, rising rates now are only one of several factors pushing the loonie higher, Orr noted, adding he hoped the currency wouldn't become a political football.
Warren Jestin, Scotiabank chief economist, said he suspects the loonie will soon reach or surpass the 90 cents US mark.
But he, too, said there's nothing the government can or should do to rein in the currency, which is being driven higher by the solid fundamentals of the Canadian economy, including budget and fiscal surpluses, strong global demand for Canadian resources, and money-market nervousness the U.S. dollar could go substantially lower.
And the latest runup in the currency was fuelled by more good news on the Canadian economy and bad news out of the U.S.
Statistics Canada reported energy sales boosted exports to record levels in October, more than offsetting an increase in imports and nudging Canada's trade surplus even higher.
"Energy is now Canada's largest export sector, weighing in at $9.2 billion," it noted. "Energy has surpassed the machinery and equipment and automotive sectors, which had exchanged the title of largest export sector back-and-forth for many years."
Exports rose a further one per cent to a record high $40.2 billion, while imports rose 1.2 per cent to $33 billion, leaving Canada with a $7.2-billion surplus, up marginally from the upwardly revised surplus the month before.
The trade report suggested firms here took advantage of the strong dollar to boost their imports of productivity enhancing machinery and equipment.
Giving the loonie an added boost was news out of the U.S. of an unexpected increase in its trade deficit, which in part reflected the increase in energy imports from Canada.
"The main contributor to the rising shipments to the United States was the increase in natural gas exports, as natural gas prices continued to climb," Statistics Canada said.
In the same paper I was reading that the U.S. Trade deficit was hitting a MONTHLY record of something like 20 Billion with China. Wow. The article also indicated that ehir is a widespred belief that official figures from China understate their GDP by as much as 20%
I'm absolutely no economics expert and wonder how sustainable the U.S. situation of budget and trade deficits can be??
Doesn't there come apoint where the U.S. hits the wall where they need to spend less or take in more? Isn't there a worry that in a time where many countries are experiencing great grwoth, the U.S. is lagging the pack?
Oh and as a Canadian I love the better purchasing power for my C$. I used to pay a 40% premium for a US buck
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