The Canadian dollar’s 22% surge against the U.S. currency has become such a threat to the economy that central bankers and chief financial officers are encouraging the loonie to weaken.
“One of the risks to the Canadian economy is persistent strength to the Canadian dollar,†Bank of Canada Governor Mark Carney, 45, said in a Bloomberg Television interview at the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 28. “We have a competitiveness problem in Canada.â€
The loonie, nicknamed for the waterfowl’s image on the C$1 coin, is hampering exports and has caused Canada’s current- account deficit — the broadest measure of trade — to widen to a record C$17.5 billion ($17.5 billion) in the third quarter of 2010, Statistics Canada said Nov. 29. Exports accounted for about 32 percent of gross domestic product in 2009, according to government figures.
Trader demand for financial contracts insuring against depreciation in the currency has more than tripled since Oct. 14, signaling investors are wary the Canadian dollar may weaken. The loonie rose 0.5 percent in the period, appreciating through parity every day this month for the first time since November 2007, and strengthening 0.2 percent to 99.93 cents per U.S. dollar at 7:03 a.m. in New York.
