Loonie surpasses $1.10 US

Last Updated: Wednesday, November 7, 2007 8:38 AM ET
CBC News
The Canadian dollar continued its lofty flight as it passed $1.10 US on Wednesday while the U.S. dollar continued to weaken.
Shortly after the start of trading in North America, the loonie was up more than 1.75 cents at $1.1027 US.
The U.S. dollar continued to lose ground against other currencies. The greenback fell to another record low of $1.4703 US against the euro, while the British pound hit $2.1051 US, a level not seen since since May 1981.
Higher oil prices also helped propel the Canadian dollar. The December futures contract for light sweet crude was up $1.27 US at $97.97 US per barrel.
Gold also shot higher Wednesday, gaining almost $22 US to hit $845.30 US an ounce.
The latest of advance of the loonie will most likely send economists back to the drawing board to redo their forecasts for the dollar. The currency has appreciated much faster than many observers had been expecting.
The Canadian dollar regained parity with the U.S. greenback in September. The loonie has been setting new records since Oct. 31, when it surpassed its previous modern-day high of $1.0614, which dated back to August 1957.

Loonie hits $1.10 US mark in overseas trade

Last Updated: Wednesday, November 7, 2007 12:53 AM ET
The Canadian Press
The Canadian dollar broke through the $1.10 US mark in overseas trading early Wednesday.
Analysts say the high-flying loonie, which hit the 110.02 cents US mark, shows no sign of landing anytime soon.
The currency set a modern-era record last Friday when it rose to 1.07 cents US, the highest it's been since 1950.
Analysts say the latest surge is credited to an impressive run-up in the price of crude oil, which is now flirting with the $98 US a barrel mark Wednesday.
Analysts also point to surging gold prices and solid returns for other commodities, particularly wheat.
The weak American dollar is further boosting the loonie.

'Incredible' loonie tops $1.09 US

Doesn't surprise me.

Economists say run-up will end ... but when?

Last Updated: Tuesday, November 6, 2007 | 8:59 PM ET

The Canadian Press

The Canadian loonie broke through another psychological barrier Tuesday, rising above $1.09 US in after-hours trading and raising alarms that the rapid acceleration is both unsustainable and damaging to the economy.

With crude oil closing in on the increasingly inevitable $100 US a barrel era, and other commodities also showing stubborn strength, the Canadian currency had another day for the record books, adding on to Monday's previous all-time high close to finish regular trading Tuesday in Toronto at 108.52 cents US, up 1.34 cents.

"This is nothing short of incredible," said Douglas Porter, deputy chief economist with BMO Capital Markets. "I'd like to say we're nearing the end of the run, but I can't say that confidently."

In fact, the Canadian currency continued to head skyward in after-hours trading Tuesday, rising another 0.65 cent US to hit 109.17 cents US at about 5:15 p.m. ET — slightly more than an hour after trading officially ends in Toronto. It later slipped back to hover around $1.09 US in evening trading.

The currency has been breaking new ground since Friday when it rose above $1.07 US, the highest it's been since 1950 when the dollar was allowed to trade freely.

The latest surge was credited to an equally impressive run-up in the price of crude oil, up to above $96 US a barrel, and gold prices that surged by over $14 US an ounce, as well as solid returns for other commodities, particularly wheat.

However, there were growing concerns that the loonie's muscle was not only suspected of being at least artificially enhanced, but also likely to exert some pain to the Canadian economy.

Risks to economy increase

In a speech in New York, Bank of Canada senior deputy governor Paul Jenkins cautioned that despite firm commodity prices and strong domestic demand, "the magnitude of the [loonie's] recent appreciation appears to be stronger than historical experience would have suggested."

And given that the loonie's surge is even stronger than the bank anticipated only three weeks ago, he warned that the risks of damage to the Canadian economy has also increased.

"The combined effect of a weaker U.S. outlook and a higher assumed level for the Canadian dollar implies that net exports will exert a significant drag on the Canadian economy," he said.

Scotia Capital economist Karen Cordes said she also expects to see a decline in domestic retail sales as more and more Canadians are lured by low prices south of the border.

"Whatever the reasons or sources of the strength, the dollar has a huge implication for Canada and we're going to start feeling it soon," she said.

Exporters feel more heat

The sky-high loonie has already caused havoc with exporting sectors, particularly manufacturers and the forest industry that depend on selling products into the United States.

Last week, Canadian Auto Workers president Buzz Hargrove again called on Bank of Canada governor David Dodge to match the 75 basis point interest rate cuts in the U.S. as a way of reining in the loonie, which he said was affecting not only car exports, but also the entire auto parts sector.

Cordes also said she believes the bank should begin cutting rates early next year, though she doubted it would. A rate cut would make foreign investments into Canada less attractive, deflating demand for the Canadian currency.

U.S. analyst Dennis Gartman, who was among the first to predict the loonie's ascent past parity as far back as five years ago on the simple premise that Canada "has stuff the world wants," said the Canadian currency is now on such a roll that it may be difficult to reverse quickly.

"The Canadian dollar is like an aircraft carrier and you can't stop that on a dime, it's got a lot of momentum," said the author of the influential Gartman Letter out of Virginia Beach. "It'll stop when one of your major exporters closes shop and says he can't compete anymore."

But Gartman disagreed with critics of the high dollar, saying that in the long run a strong currency is good for Canada because it will force businesses to compete in the world despite the high currency.

Still, he said he is not "long" on the dollar and predicts any rise above $1.10 US will be unsustainable.

Oil hits another record above $97

Fears of dwindling stockpiles in the United States, a falling dollar and projections of strong demand push crude closer to $100.

NEW YORK -- Oil prices set another record high Tuesday, jumping over $2 on fears of dwindling supplies in the United States, projections for strong worldwide demand and a falling U.S. dollar.

A suicide bombing in Afghanistan that killed at least 35 people and a pipeline attack in Yemen also helped push prices higher.

Oil prices jumped above $96 Friday, another record, as traders bet on falling U.S. supply.

U.S. light crude for December delivery gained $2.72 to settle at $96.70 a barrel on the New York Mercantile Exchange, surpassing the previous closing high of $95.93 set Friday. Crude hit an intraday high of $97.07, surpassing the previous intraday record of $96.05, also set Friday.

Crude, already up more than $2 in morning trade, rose further after the Energy Information Administration issued a report showing worldwide demand unchanged, despite high prices.

EIA said the forecast for oil use growth worldwide in 2008 was unchanged at 1.5 million barrels per day. This was despite the fact prices have risen 20 percent.

The agency said world oil use would grow by 1.8 million barrels per day in the current quarter, slightly below previous estimates due to a drop in U.S. demand.

The world currently consumes about 85.6 million barrels of oil a day.

Total U.S. petroleum consumption is expected to increase by 0.5 percent in 2007 and 1 percent in 2008, despite the higher oil and petroleum product prices. Continued economic growth and forecasted colder average temperatures this winter than last winter could combine to push demand higher.

The rising demand's impact on prices was noted.

"Tight fundamentals continue to put upward pressure on oil prices," read the report. "Global oil markets will likely remain stretched, as world oil demand has continued to grow much faster than oil supply outside of the Organization of the Petroleum Exporting Countries."

EIA estimates oil prices in the fourth quarter to average $87 a barrel.

Crude got a boost earlier in the day on projections of another stockpile draw in the United States.

Analysts expect a 1.6 million barrel drop in domestic crude supplies when the government issues its weekly inventory report Wednesday.

Most of the decline is being blamed on an outage from Pemex, Mexico's national oil company. Mexico, after Canada, is the second largest source of imported U.S. oil.

The drop would follow last week's decline of more than 5 million barrels. It would also come while refineries are shutting down for planned maintenance - a time that should see rising supplies of oil as refineries turn less of it into gasoline.

Overseas, at least 35 people - including three children and six members of parliament - have been killed in a suicide bombing at a sugar factory in northern Afghanistan, the hospital chief in that province told CNN.

While Afghanistan doesn't produce much oil, violence in the Middle East always makes traders nervous. The fear is the conflict could spread to the broader region, which holds nearly two-thirds of the world's oil reserves.

An attack on an oil pipeline in Yemen also disrupted the shipment of 155,000 barrels of oil a day, the Associated Press reported.

The continuing weakness of the U.S. dollar, which hit $1.4556 against the euro earlier Tuesday, also contributed to climbing oil prices.

One analyst said oil will likely attempt to break $100 a barrel but actually doing so might be tough.

"We still feel that prices will ultimately advance to at least $98.50," Peter Beutel, an oil analyst at Cameron Hanover, wrote in a research note. "But there will be increasingly heavy long-term profit-taking as prices get closer to the magical three-digit level."

Crude prices have spiked more than 20 percent in the last three weeks. The jump is unusual because this time of year is known as a shoulder season - marked by slack demand - between the summer driving and winter heating months.

Crude is now at or near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited.

Fighting between Turkey and the Kurds in oil-rich northern Iraq, reports showing demand outpacing supply in the fourth quarter, a falling dollar and lots of speculative investing have all been cited as reasons for the runup.

Crude oil prices have surged nearly five-fold since trading below $20 a barrel in 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.

The surge in prices has also attracted lots of speculative investment money, further driving prices higher.

And the tight supply and demand situation magnifies the effect that geopolitical tensions have on prices, as there is less spare supply available globally to cover disruptions from places like Iran, Nigeria or Venezuela.

The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars.

Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.

World News says that $120 per barrel is months away.

Yes, here I go again, to the USA

Yes, here I go again, to the USA for the 4th time in 2 months.

I think I have an addiction. It's called the "Canadian Dollar and what it's worth in the USA" addiction. Great deals everywhere, even at the car dealerships. You just have to arm wrestle the for a while. My buddy just saved about $15,000.00 off the cost of a new Honda Pilot. Great deal at about $29,500.00. Compare that to the price in Canada. Nuts. But, don't try and force this on people, not everyone likes to know.

And for everyone else, I was screwed today at the door by Canada Post. Nailed $37.00 duties and taxes for my $98.00 pair of Joe Rocket pants. Little did I know, there are places in Maine I could have had them shipped to and picked them up for NOTHING compared to $37.00. Another lesson learned. My boots are coming next week as a gift valued at $60.00. That means, NO DUTIES and NO TAXES.

Have a great trip all,

Savin in Maine