Looney Hits Par w/ US Dollar

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A strong oil price and the faltering U.S. economy have enabled the Canadian dollar to surpass the greenback in value for the first time in nearly 31 years. </p>

The Canadian dollar rose as high as US$1.0001 just before 11 a.m. on Thursday -- something that hasn't happened since Nov. 25, 1976. </p>

The dollar fell back in later trading. By 1:40 p.m., it was selling for US99.80 cents.</p>

The Canadian dollar's surge in recent days follows a decision by the U.S. Federal Reserve to slash a key interest rate in a bid to calm mounting concerns over the depth of a crisis in the U.S. mortgage market. Meanwhile, prices for commodities such as oil, gold and base metals -- items found in healthy abundance in Canada -- remain near record levels. The Canadian dollar has risen US5&cent; this month alone, a move that caps a surge of more than 60% since the loonie hit a rock bottom value of less than US62 cents in early 2002. </p>

The slump in the U.S. dollar has triggered other economic shifts around the world. Early Thursday, the greenback sunk to a record low against the euro. Also Thursday, gold hit a record high of US$734.85 an ounce on Thursday. Gold is bought and sold in U.S. dollars, so a weaker dollar makes bullion cheaper for foreign investors.</p>

Oil, which powers the economy in Western Canada, continues to sell near US$82 a barrel. </p>

One cause of the greenback's drop appears to be concern over remarks by Ben Bernanke, Chairman of the U.S. Federal Reserve, in an address to a U.S. congressional committee on Thursday morning.</p>

In a prepared text of his remarks, Mr. Bernanke said that losses in the subprime mortgage market have triggered uncertainty in broader financial markets. The U.S. Fed cut its benchmark federal funds rate by 50 basis points on Tuesday to 4.75% to help forestall some of the adverse effects on the broader economy that might arise from subprime crisis, Mr. Bernanke's prepared remarks state.</p>

"Recent developments in financial markets have increased the uncertainty surrounding the economic outlook," Mr. Bernanke said. "The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth." </p>

The dollar opened the week at US$0.97 and shot up almost three cents versus the greenback, a rise economists attribute to surging commodity prices, especially for oil.</p>

One of the factors affecting how high the dollar rises is the market's expectation of what the Bank of Canada will do at its monetary policy meeting in October, said Jack Spitz, director of foreign exchange at National Bank. The loonie is already above the central bank's own target level, he added.</p>

While Canadian tourists might enjoy the new-found clout their currency has south of the border, the rise of the loonie is not problem free. Canadian manufacturers are gravely concerned about the currency's strength. Most of Canada's manufactured goods are exported to the U.S., so a higher dollar adds to the cost of the Canadian-built products. </p>

The slumping U.S. economy has also impacted demand from some key Canadian products, such as lumber. The weak U.S. housing market has pulled down lumber prices, and Canadian producers are suffering. </p>

The Canadian forestry industry continues to sustain heavy losses, PricewaterhouseCoopers reported yesterday. PwC said that industry-wide earnings dropped by $509-million from the previous year's profitable second quarter, to a loss of $45-million.</div></p>

Source:Financial Post</p>

This is depressing for me. I look forward all year to snowboard in Vancouver and shred up Whistler. It's been a cheap vacation because the US currency was strong, but with the dollar being on par with the Looney, I'll probably skip out on my annual trip out there. </p>

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