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MARKET SAVVY | Savvy Confidential / A briefing for
investors

Americans' Buying Power Goes North as Canadian Dollar Falls to New Low

July 30, 1998|Times Staff, Bloomberg News

The Canadian dollar's value is tumbling, but exactly why is anyone's guess.

In the meantime, the currency's slide is making Canada a cheaper destination for U.S. tourists.

The Canadian dollar on Wednesday reached a record low against the U.S. dollar: One American buck now buys $1.508 Canadian.

That's 6% more than the U.S. dollar bought in April and 12% more than in early 1997.

To put the numbers in more perspective, a U.S. dollar was worth just $1.10 Canadian in 1992.

(These are exchange rates for big-money transactions. Individuals would probably get a less favorable exchange rate at the bank, but the trend has been the same.)

The Canadian dollar's new lows Wednesday were blamed in part on Prime Minister Jean Chretien's attempt to shrug off the currency's latest slide as "turbulence in financial markets."

"The economy is performing very well at this time, and it is our role to make the economy perform very well," Chretien told reporters.

Finance Minister Paul Martin on Tuesday also gave an upbeat assessment of Canada's economy, saying growth was proceeding at a "very strong" pace.

But he added: "No Canadian, and certainly no finance minister, is indifferent to the state of their currency."

On a fundamental level, Canadian short-term interest rates are close to U.S. rates, while Canada's inflation rate is actually below the U.S. inflation rate. So there's no great reason, on those counts, for Canadian money to attempt to migrate.

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Then why is the Canadian dollar so weak?

Some analysts say the currency isn't reflecting economic stress, but rather is simply under pressure from speculators who trade currencies around the world solely to make a profit from their ups and downs.

"There's growing concern that the decline is a speculative attack against the currency and the Bank of Canada," said Karim Basta, an economist with Merrill Lynch & Co. in New York.

Other analysts say the Canadian dollar may be falling because of persistent weakness in commodity prices--given that Canada is a major exporter of timber, paper, natural gas, grains and other commodities.

Whatever the cause, the currency's slide means Canada is a bigger bargain for Americans. But then, that's true of many countries this year, as the dollar remains the strongman of world currencies.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

A Bargain, Eh?

One U.S. dollar now buys $1.508 Canadian dollars, a record, as the Canadian dollar continues to weaken. That gives U.S. investors and consumers more buying power in Canada. Canadian dollars per U.S. dollar, monthly closes and latest:

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Wednesday: $1.508

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Source: Bloomberg News

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