TORONTO - The Canadian dollar - the only among the major global currencies - is on the rampage, reaching its highest level against the US dollar in 2009 Tuesday.
The loonie, as the Canadian dollar is called, reached almost 94 cents US for the first time since October 2009, raising concern about its impact on the country’s economic recovery.
As Canada is a major exporter of minerals, metal and oil and gas, the rising loonie will deter buyers, mainly the US, with its sinking dollar and continuing economic crisis.
The dollar rampage forced Canadian Finance Minister Jim Flaherty Tuesday to warn of “some steps that could be taken to dampen” the rise of the currency.
The finance minister said: “There are, from time to time, indications of some speculation in the Canadian currency that is not justified in market terms.”
Two weeks ago, the head of the country’s central bank had also warned that the Bank of Canada could be forced to intervene to check the rising currency as its rise will hamper the recovery process.
The finance minister’s warning earlier in the day had some impact as the Canadian dollar retreated slightly to close at 93.07 cents US.
However, analysts expect the Canadian dollar to reach parity with the American greenback by the end of the year. The last time the loonie had reached parity with the US dollar was in Nov 2007. In fact, at one time one Canadian dollar sold for 1.10 US dollar in Nov 2007.
Fuelled by the rising oil prices, the loonie stayed at par with the US dollar till the economic crisis hit last year and oil prices started dropping.
With plunging oil prices, the Canadian dollar also sank as low as 76.53 cents US March 9 this year - its worst performance against the US dollar in five years.
But in recent weeks, the loonie has jumped on increasing commodity and oil prices, slipping US dollar and less risk aversion among investors to abandon the safety of the greenback.
In July alone, the currency rose almost seven percent against the US greenback, triggering fears as expressed by the Canadian finance minister Tuesday. But any intervention by the Canadian government and the central bank to contain the currency may have little impact as the global trends are likely to push the US dollar even lower.
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