The Lilith eZine
What's behind the soaring Canadian dollar?
Four years after it hit an all-time low, the Canadian dollar in 2006 was riding a steady escalator up. Since January 2002, the once-lowly loonie has gained more than 40 per cent against the currency it's most concerned with the American dollar.
By May 2006, the dollar had broken through the 90-cent US level - its highest rate since 1978. Despite rising all the way from its all-time low of 62 cents US in early 2002, many economists are saying there's still room for the loonie to keep rising.
Look for 92 to 95 cents US by later 2006, some say. And several analysts are calling for the loonie to reach parity with its U.S counterpart by 2007 something that hasn't happened since 1976.
So what's behind the buck's run-up? Well, there are several reasons and Washington holds the key to some of them.
The Canadian dollar is constantly being measured against its U.S. counterpart because Canada and the U.S. are neighbours and form the world's largest trading partnership.
The loonie's been flying in large part because the U.S. economy has been struggling to get off the ground. Washington is facing budget and trade deficits that have never been higher. In 2005, the U.S. bought $723.6 billion more in foreign goods and services than it sold, registering yet another record annual trade deficit.
To pay for those imports including huge amounts of oil, gas, cars and car parts, lumber and numerous other products from Canada U.S. consumers in effect have to buy them with foreign currencies. To do that, they have to sell U.S. dollars in international money markets. As in any market, the unending supply has pushed the price of the greenback down, as measured in other currencies.
For several years, American sales of U.S. dollars didn't have much effect on the price of the Canadian dollar, but that started to change in 2003. The greenback fell 22 per cent against the loonie during the year and fell almost exactly the same amount against the euro.
Boosting the loonie
There are other factors that influence the dollar.
While the international flight from the U.S. dollar to other currencies affects that currency, Canada's economic performance plays a big role in boosting the loonie. Canada's jobless rate was at a 32-year low of 6.3 per cent in early 2006, as more than 330,000 jobs had been created in the previous year. Growth in GDP was running at more than 3 per cent.
The Bank of Canada has noticed that growth and has been responding accordingly. Since mid-2004, it has doubled its key lending rate to help keep a lid on inflation. And with the central bank forecasting that the economy would operate slightly above its production capacity through to 2008, it warned that further modest rate hikes are likely.
With the U.S. Federal Reserve signalling that its long rate hike campaign was near an end, language like that has made the Canadian dollar a relatively more attractive destination for foreign capital.
Another factor that has helped to push up the Canadian dollar is rising commodity prices especially a run-up in the price of oil. As a net exporter of oil, Canada is seen as benefiting overall from record oil prices.
But it's not just oil. Canada exports huge amounts of nickel, copper, aluminum and zinc. All of these commodities are at or near record highs. With commodities accounting for 35 per cent of Canada's exports, the loonie is seen around the world as a "commodity-based currency," and has been bid up accordingly.
Winners and losers
When the loonie has a big move in either direction, some of the effects are instantly obvious.
When it gains ground against the U.S. dollar, for example, Canadian exporters lose ground because their products become more expensive for U.S. buyers. It's simply harder to compete.
Since 2002, Statistics Canada says 189,000 manufacturing jobs have disappeared in Canada. The agency places the blame squarely on the soaring loonie.
But some economists say the difficulties of adjusting to a higher loonie will help exporters in the long run, because they've had to take measures to improve efficiency. The days of relying on a cheap loonie to help them sell in the U.S. are long gone.
Cheaper U.S. dollars also provide Canadian companies with an opportunity to invest in U.S.-made tools that make them more competitive. Much of the software and machinery Canadian companies buy to run their operations are bought from the U.S. A more favourable exchange rate means those companies can invest more in those tools of efficiency.
For some companies, including those that have been reporting weaker American sales because of the loonie's gains, there can be yet another silver lining. As the Canadian dollar rises, the cost of repaying U.S. dollar debt falls. Many Canadian companies have debt that is denominated in U.S. dollars. Those debt payments become cheaper when the American dollar falls.
Snowbirds and other Canadian visitors to the U.S. are finding that their money goes much further these days. In 2002, Canadians had to pay $1.62 for each U.S. dollar they bought. In 2006, those U.S. dollars were costing just $1.12 each.
Conversely, U.S. visitors to Canada are finding that their money is buying less than it used to. In early 2006, Statistics Canada reported the number of same-day cross-border vehicle trips made by Americans to Canada fell to their lowest level on record.
Afghan war top news story in 2006
Canadian Press - January 01, 2007
Canadians made a spectacular switch from Liberal to Conservative governing regimes in 2006, but a gritty little war half a world away was the overwhelming choice as the top Canadian news story of the year.
The war in Afghanistan started in 2001 and steadily faded from the world's headlines as the focus shifted to Iraq, but five years later Canada's small part in the fight to calm the country hit home with bloody clarity.
Newspaper editors and broadcasters left no doubt that Canada's mission in Afghanistan was the top news story of the year. In the annual poll by The Canadian Press and Broadcast News, the war in Afghanistan easily outranked the Conservatives' electoral victory by a margin of 91-44. The Canadian Soldier was chosen the Canadian Newsmaker of the Year in poll results announced last week.
"Whereas other stories have come and gone, this one continues and will remain a top story next year as well," said Mel Rothenburger, managing editor of the The Daily News in Kamloops, B.C.
For the first time since the Korean War, Canadian soldiers went into sustained, major combat and suffered hundreds of casualties, including 36 deaths in the last year.
Canadians took tiny patches of terrain at harrowing risk only to have insurgents seep back into strongholds, like the ghosts of anti-Soviet forces from the 1980s.
And through the spring-to-fall Afghan fighting season, images of Maple Leaf-draped coffins became crimson staples for front pages and newscasts.
"Nothing can bring it home like the faces of the dead," said historian and author Serge Durflinger.
"They can be your neighbour, they can be your son. They can be people you played hockey with, members of your community, people you volunteer with. They all look like someone you've seen somewhere.
"It makes (Canadians) understand we're at war to a far greater extent then they did before."
The escalating violence triggered debate in Canada over the human cost of the mission and the balance between combat and rebuilding the tattered country.
Canadians were divided on the mission, with polls indicating more than half of the population believing it cannot be won.
Despite the potential political dynamite, Prime Minister Stephen Harper extended the mission into 2009. Five years into the effort to stabilize Afghanistan, neither Canada nor NATO has a clear exit strategy in sight.
Many questioned whether peace is possible in a country where many people don't seem to want it.
The high profile of Canadian combat losses may skew Canada's view of Afghan resistance to foreign troops. Fighting and key Taliban support is limited to a handful of Afghanistan's 34 provinces, and Canada is charged with security in just one of them.
Unlike the popular revolt that fed anti-Soviet fighting, today's insurgents remain a small minority in the south and eastern countryside.
An overwhelming majority of Afghans supported the Canadian presence in Afghanistan and opposed Taliban resistance in a poll conducted in the fall for ABC News by Charney Research.
A resounding 71 per cent of 1,036 Afghans interviewed in October near the end of the heaviest fighting said they were grateful to have Canadian soldiers on Afghan soil. Only 11 per cent thought the 2001 removal of the Taliban was a bad thing.
"One important message for Canadians is that Canadian troops are very much wanted in Afghanistan and Afghans are grateful for their presence," said pollster Craig Charney.
"It's a proportion you rarely see in opinion polls. We also see 95 per cent of Afghans are appalled at the killings of civilians and teachers and the burnings of schools."
Canadians are saddened by images of wounded soldiers and caskets but only a tiny fraction of Canadians have made any real sacrifice for the Afghan cause.
A few thousand families have sent loved ones over to fight. Beyond Canada's small military community, life goes on.
"I'm surprised (by the CP-BN poll result), I have a little trouble understanding why Afghanistan has achieved such a prominent place," said historian Jack Granatstein.
"I don't think the general public is touched heavily by it at all. There's no hardships people are suffering at home. Yes, we feel the casualties, we are upset at them. But it in no way affects lives of 99.9 per cent of Canadians. They carry on doing exactly what they do.
"I thought the story of the year was Stephen Harper's victory. In Canadian terms, it's such a major change in our politics."
Granatstein noted that previous Canadian wars dwarf the Afghan conflict. Even peacekeeping operations in the Middle East and former Yugoslavia suffered major casualties and involved as many troops.
"Afghanistan is just a small war," Granatstein said. "It's not a big fight, even in Canadian terms."
Small war or not, the head of the Canadian military sees major significance in Canada's aggressive stand in southern Afghanistan.
"It's perhaps almost a no-brainer," said Gen. Rick Hillier, Canada's top soldier, when told about the vote results making the mission the top story.
"It's a significant mission . . . because of the casualties we've taken. Because of the kind of operation it is (Afghanistan) has really seized our country.
"It's one where the risk has been high. The potential for success has been incredible."
Afghanistan has altered Canada's image of its soldiers. In 2006, the blue beret and the friendly, humanitarian Canadian soldier of peacekeeping lore suddenly gave way to Canadian troops blasting away with machine-guns.
Some 116 soldiers died over the years in peacekeeping missions and those deaths barely caused a ripple. But 43 military deaths in Afghanistan since 2001 have changed all that.
Peacekeeper deaths "scarcely tweaked on the Canadian public," Granatstein said. "To really get to the bottom of it, you have to be able to get into the Canadian psyche. I'm not sure I can."
About 2,200 Canadian troops took over the major security role in Kandahar province, the heartland of the resurgent Taliban. The area is a traditional hotbed of resistance to foreign invasion, dating back to the Soviet era in Afghanistan and beyond.
Sporadic violence increased across Afghanistan as bombings became a favourite tactic targetting civilians and armed forces alike. Estimates put the death toll near 4,000, including insurgents and civilians.
But Kandahar is the heart of the action. In the years ahead, success or failure in Afghanistan for the international community may be defined by how well Canadians contain Kandahar.
"There was an enemy offensive this year that did not make the Afghan side collapse," said Charney, the pollster. "It shows Afghans are standing up in this fight. The challenge now to Canadians is to do the same."
A view has grown that Canadians are already bearing too large a load in Afghan war.
Canada is just one small part of the overall NATO mission in Afghanistan, with more than 30,000 troops from several nations fanned out across the rugged, mountainous country.
Fourteen countries have lost soldiers in Afghanistan since 2001, including Spain with 19 deaths and Germany with 18.
Despite Canada's heavy toll in 2006, the Canadians didn't suffer the most casualties among foreign troops last year.
Britain suffered 38 deaths. About 200 United States military personnel were killed.