Loonie hits record
For those of you non-Canadians who do not yet know what the “loonie” is… its the world’s best-performing major currency this year - the Canadian dollar. It rose as high as $1.0717 (U.S.) Friday from Thursday’s close of $1.0512. It settled Friday’s session at $1.0704, up 1.92 cents.
The currency has soared 25-percent this year against the greenback — and almost 7 per cent in the past month alone. The gains are most striking against the U.S. dollar, but the loonie is also stronger against every single major world currency this year, including the euro, the yen and the Brazilian real.
The CAD is behaving like a growth stock not a currency. Overall it is good that the CAD is stronger but the speed of the rise is somewhat concerning as there is no precedent. No period of similar growth with which we can compare what the next experience will be. Some are forecasting a disaster…
I wouldn’t predict a complete disaster; but any company trying to sell goods to the world will experience a serious profit squeeze. It is tough to set prices when the currency changes so quickly. Hedging is great, but you don’t usually hedge all your projected sales in one contract. There will be fallout from this, but it will be concentrated.
The good news for the average person is that our prices for imported goods should decline. The bad news is that the cost of heating our homes is getting more expensive as commodity prices for oil and natural gas continue to climb. It’ll be interesting to see what the inflation figures come in at in the next few months. If a higher dollar keeps inflation in check by making imports cheaper, then its a good news story.
But I think there will be a lot of people in manufacturing who will be negatively affected.
RBC, the largest international trader of Canadian dollars, raised its forecast for the currency on Friday, saying it will appreciate further to around $1.08 before declining below parity in the second half of next year.
The Canadian dollar has traded above $1.07 before, though that was before official record-keeping began.
The dollar was technically worth as much as $2.78 in the late 1800s, but that’s largely because during Canada’s early history the value of the currency was either pegged to the price of gold or regulated by the government.
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