Author: Erik Heinrich
Piling up: The loonie posts record gains against the US dollar.
Since hitting an all-time low of $0.62 in 2002, the loonie has made a remarkable comeback. Red-hot demand from the United States and from the emerging economies of China and India for basic commodities such as aluminum, nickel, oil and wheat has lit a fire under the world’s eighth-biggest economy. But its currency has also been lifted by foreign direct investment in key resource sectors and by job creation. The International Monetary Fund predicts Canada will lead Group of Seven nations in economic growth in 2008.
Not all Canadians are pleased about their currency’s newfound status. The manufacturing sector is having a hard time adjusting to a strong currency, particularly in the country’s industrial heartland of southern Ontario. And some contrarians predict parity with the US dollar will eventually push Canada into a recession.
How long can the plumped up loonie hold on? Gregory predicts it will lose as much as 10% of its value by the end of next year. “An exchange rate of $0.92 to $0.94 is explainable,” he says. “The rest is speculative froth.” Perhaps, but the global boom in commodities is sure to keep Canada and its currency in the spotlight for at least the foreseeable future (see Focus: Canada For Sale on page 43).