Loonie chases parity

The loonie continued its flight toward parity Wednesday hitting 99 cents US at one point pushed forward by
solid commodity prices, a renewed low rate pledge south of the border and better-than-expected Canadian
wholesale trade numbers.

The tipping point could come as early as Friday when the next round of consumer prices are slated for release,
National Bank’s director of foreign exchange Jack Spitz told QMI.

“There’s little in the way of market events that can stop it,” Spitz said, adding only a major global economic
shakeup could derail the commodity-reliant dollar.

The only question now, according to Spitz, is how long parity can be sustained once it's reached.
The currency’s third 20-month high in as many days had Industry Minister Tony Clement calming fears the
lofty loonie would hurt Canadian competitiveness.

Clement said domestic firms are adjusting “very well” to the higher dollar thanks to lower taxes and improving
productivity.

“All of these things have a cumulative effect that we expect will more than overcome the fact of the high
dollar,” he told reporters Wednesday.

Canadian manufacturers traditionally struggle with a high dollar because it makes their export goods more
expensive for buyers in the U.S.

“In the past, it’s been a challenge for companies in Canada because of the fact that they relied historically on the
lower dollar to be their productivity and competitiveness edge,” Clement said.

Clements’s views echo a report released by the Conference Board of Canada earlier this week that said
manufacturers in this country are increasingly flexible when it comes to currency fluctuations because there are
more international hedging options available to them than ever before.

Canada’s service industry, which has not internationalized to the same extent, is most vulnerable, the think tank
said.

For many industry watchers, the recession highlighted the need for diversified firms with higher productivity
rates and access to cutting-edge technology.

“The new normal is that you don’t just rely on a low Canadian dollar as your productivity edge and I think most
businesses have gotten that point now,” Clement said.

THE TAILWIND
Improving economic figures gave the Canadian dollar another boost Wednesday.

January saw the biggest jump in sales at the Canadian wholesale level in three years, Statistics Canada said.
Sales were up across all sectors and by an average of 3% to $44.4 billion during the month.

Combined with Tuesday’s above forecast manufacturing sales report, the data added to evidence inflation may
be building as the economic recovery gains momentum.

Canadian bond prices fell Wednesday as investors see a strengthened economic recovery spurring interest rate
hikes in the near future. Two-year government bond prices fell 9 cents while 10-year issues dropped 23 cents.