Loonie vaults over 99 cents US in overseas trade
Canada's currency continued its flight toward parity with the U.S. greenback as the loonie briefly breached the 99-cent US mark in overnight trading on global currency markets.
The Canadian dollar set another standard in overseas trading at 99.18 cents US.
Following the release ofsurprisingly benign Canadian inflation data, the loonielost some ground in North American trading. The dollar closed at 98.50 cents US, off0.14 of a cent fromTuesday's close.
"Analysts say any day now, Canadians will wake up to find out a Canadian dollar is worth exactly as much as the U.S. dollar; maybe even a little more," CBC-TV's Danielle Bochove said Wednesday.
It's good news for shoppers, as the cost of goods imported from the U.S. should be coming down soon, though that does not happen in lockstep with the currency movement, in part because of differences in duties and shipping costs.
Holiday travelling to the Stateswill also be cheaper.
On the negative side, the Canadian dollar, which has risen 15 per cent this year alone, has been tough to manage forexporters, forestry companiesand manufacturers vulnerable to a strong loonie.
On Tuesday, SFK Pulp Fund cut its monthly payout to investors by 60 per cent, citing the higher dollar.
Fuelled by Federal Reserve interest-rate cut
"This reduction is a direct consequence of the continued strengthening of the Canadian dollar against its U.S. counterpart that deeply impacts the Canadian forest and paper industry," CEO Andre Bernier said.
The loonie's big move was helped along by the Federal Reserve's unexpectedly large cut in a key interest rate Tuesday afternoon.
The rate cut left the U.S. federal funds rate at 4.75 per cent, while the counterpart rate in Canada remains at 4.50 per cent. That dramatically narrowed the spread between the two rates and made Canadian dollars a lot more attractive.
Talk of "whether" the dollar would hit parity with the U.S. currency seemed to be supplanted by talk of "when" it would reach that milestone.
The Canadian dollar's rise against the U.S. greenback has been stunning — up 15 per cent so far this year and up about 60 per cent since early 2002.
'Petro currency'
That's when the commodity price boom began to exert its loonie-positive effect as the price of many resource products that Canada exports in abundance began to climb — with oil being a notably strong performer.
The loonie is widely seen as a "petro currency," meaning it is closely tied to the rise and fall of oil markets. The price of oil was hitting more new highs on Tuesday, rising 94 cents to close at $81.51 US a barrel.
The Canadian Auto Workers on Tuesday called on the Bank of Canada to match or exceed the Fed's rate cut.
"The U.S. Fed is taking the broader view, recognizing that central bankers have responsibility for the whole economy, not just inflation," said CAW economist Jim Stanford.
"It's time the Bank of Canada took a similarly broad view."