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Greenback at 30-Year Low vs. Canadian Dollar
By: Reuters | 20 Sep 2007 | 01:00 PM ET
Text Size

The Canadian dollar hit parity with the U.S. dollar for the first time in 31 years Thursday, capping a 62 percent rise from 2002 on the back of booming commodity prices and a deepening disenchantment with the greenback.

The historic level comes as oil prices sit near record highs and a China-led building boom helps boost base metals prices, developments that have guided billions in profits to Canada's resource-rich West, stoking the bulk of the currency's past rise.

Canadian Dollar
AP
The Canadian dollar hit parity with the U.S. dollar for the first time in 31 years.

"The huge increase in commodity prices in general have fed the acceleration of the Canadian dollar," said Carlos Leitao, chief economist at Laurentian Bank of Canada.

"The fact that economic growth in Asia and in general has accelerated has fed this large appetite for natural resources, particularly energy, which we have a lot of."

The resource boom has coincided with the U.S. dollar's own broad-based decline, following the collapse of the tech bubble in 2001 and the growing U.S. budget and trade deficits, which contrast with Canada's surpluses.

The final push to the key level Thursday came as the greenback hit a record low against the euro, [$$EURUSD  Loading...      ()   ] following a steeper than expected interest rate cut of 50 basis points by the U.S. Federal Reserve on Tuesday.

The Fed made the move to shield the U.S. economy from a deepening housing slump and credit market turbulence, elements that have as yet not had much impact on the Canadian economy.

"Momentum is favorable for the Canadian dollar, and bearish for the U.S. dollar," said RBC currency strategist David Watt.

"People are now beginning to discuss where the Canadian dollar will stop after parity."

The Canadian dollar [$$USDCAD  Loading...      ()   ] crept just above the $1 level in morning trading, rising as high as C$0.9996 to the U.S. dollar, or $1.0004, before easing.

Just after midday, it was at C$1.0010 to the U.S. dollar, or 99.90 U.S. cents.

National Pride

The currency's climb from a low of 61.75 U.S. cents in 2002 has been embraced by a country that often feels itself in the economic and cultural shadow of its more powerful southern neighbor.

But the gains have not been without turbulence, as Canadian exporters -- particularly manufacturers -- have found themselves struggling to sell products to U.S. buyers whose currency buys much less than it did just a few years ago.

With the bulk of Canada's exports destined for the United States, this has pressured economic growth, and prompted a harsh readjustment as the country's economic heartbeat has tilted west to Alberta's energy riches from the industrial centers of Ontario and Quebec.

The close bilateral trade ties also mean that any prolonged U.S. economic slump will eventually filter into Canada, which prompts some analysts to predict that the currency may not spend much time around the parity level.

"Our view is through next year that the Canadian dollar will pull back, largely because commodity prices will moderate a bit, and the economy will pay the price for a high currency," said Sal Guatieri, senior economist at BMO Capital Markets.

Copyright 2009 Reuters. Click for restrictions.
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