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Tuesday, Jul. 28, 1998
Canadian currency hits low against U.S. dollar
Canada's policy of inaction draws blame, praise
By DAVID CRARY
Associated PressTORONTO - For the first time in its 140-year history, the Canadian dollar's value fell Monday to less than two-thirds of the U.S. dollar, fueling debate over the federal strategy of passively riding out the plunge.
The Canadian dollar closed in Toronto at 66.51 U.S. cents, down from 66.71 cents Friday. One U.S. dollar was valued at $1.5035 in Canadian currency.
Known as the loonie because of a loon pictured on the $1 coin, the Canadian dollar has been weak for months because of the Asian financial crisis. It has set record lows almost daily for the past two weeks.
Yet, the Bank of Canada has refused to raise interest rates to bolster the dollar, and Prime Minister Jean Chretien's government has rejected calls to take other countermeasures.
Opposition politicians denounce the authorities' passive stance.
``Every time the prime minister comes out and says, `We don't mind a low dollar, it improves our exports,' it suggests the government may actually have a policy of devaluation,'' said Parliament member Jason Kenney, finance spokesman for the right-wing Reform Party. ``This sends a bizarre message to currency markets.''
But many economists have praised the Bank of Canada's do-nothing strategy, saying the loonie's problems stem from the Asian crisis and falling global commodity prices rather than any basic flaw in the Canadian economy.
``It strikes me as market forces at work, and the bank - I think wisely - is letting them work unimpeded,'' said Mark Mullins, chief economist at Midland Walwyn Capital Corp.
The head of Canada's largest labor federation agreed.
``For once the Bank of Canada has got it right,'' said Bob White, president of the Canadian Labor Congress. ``It would be a profound mistake to attempt to prop up the dollar through higher interest rates which could well plunge us back into a recession.''
Though outright recession seems unlikely for now, recent projections suggest Canada's economic expansion is slowing.
In the first quarter of this year, the gross domestic product was growing at a 3.7-percent annual pace. Analysts now expect a growth rate of about 2.5 percent for the second quarter.
In early 1997, the loonie was worth nearly 75 U.S. cents, but plunged to under 69 cents in January.
The drop has been hard on Canadians traveling to the United States, but a boon for Canadian merchants near the U.S. border who have enjoyed a surge of business from bargain-hunting Americans.
Some Canadian exporters have enjoyed higher profits because their products are now cheaper for U.S. companies. But prices of imported U.S. goods, such as fruit and vegetables from the Sun Belt states, are becoming more expensive.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web