The Loonie

If a high dollar reflected a high standard of living, Canadians should be feeling richer.

Sadly, that's not the case -- as our high flying loonie zoomed by a cent yesterday to hit at almost 91 cents US, after cracking the 90 cents barrier last week.

Yesterday, it touched as high as 90.95 cents US, its highest level against the greenback since January 1978, then settled back to close at 90.87 cents.

"Some Canadians will feel good about it, some will feel bad, but the reality is we all have to get used to it (a higher dollar)" said Scotiabank chief economist Warren Jestin.

When it comes to a soaring dollar, there are winners and losers. For some, like Canadians travelling abroad, or companies who import, a higher dollar is heaven sent. But for the manufacturing sector, which lost more than 100,000 jobs last year and is struggling with skyrocketing energy costs, a high dollar can be a killer by making their exports less attractive.

What has been lighting a fire under our Canbuck is an ailing greenback, hurt by the fallout from a record U.S. trade deficit and fiscal imbalance. Also, there's speculation the Federal Reserve could hold the line on interest rates when it meets today.

In contrast to the U.S., Canada is sitting on sweet surpluses, with our fiscal books in better shape than those in most parts of the world. Investors like that. And that gives our buck a boost.

So, too, does a commodities boom. Canada is rich in commodities and, name it -- oil, natural gas, uranium, nickel, copper, zine, iron ore, coal and gold -- are on fire.

Oil yesterday moved ahead again, up to $71.95 US a barrel -- while gold prices hit a 25-year high of $701.50 US an ounce, up $21.60 US on the day.

Gold, once considered a hedge against inflation and an asset to hold in troubled times, hit a record of $850 US an ounce back in 1980. Today, the glittery stuff is getting a boost from political tensions in Iran over nuclear intentions, worries of inflation and China's gold reserves, which economists argue needed to be quadrupled.

"Gold will continue to be seen as a safe bet as international tension looks set to increase again, while the (U.S.) dollar is set to remain under pressure," said James Moore, an analyst at The BullionDesk.com.

Now, back to our buck. Some Sun readers want to know why we're not seeing price relief in a number of consumer products, from imported wine to even gasoline.

"As a consumer of imported products, one would expect the price of offshore goods should be reflecting the currency change," said Russ Goheen of Pefferlaw.

Goheen said he recently visited his local LCBO store to pick up a bottle of Scotch, Drambuie and some California wine and "prices on these imported products are as high as they were a year or more ago. What gives?"

Scotiabank's Jestin explains price reductions would be seen only on products imported from the U.S. If they're from Europe, for example, where the euro is higher against the American dollar, consumers shouldn't be seeing any price drops.

Jestin also points out some imported products are purchased on contract, which may yet not reflect the higher value of our buck. And he points out, Canada's high taxes on goods like wine and alcoholic beverages keep our prices high.

The Sun's resident wine expert says we are starting to see some price relief in U.S. imported wines.

Comments Jestin: "The longer the Canadian dollar stays high, the more benefit we'll see."

And how high is our dollar going to go?

Jestin predicts price volatility in the months ahead, but the movement is up, and within the next 18 months, "I wouldn't be surprised if it approached par with the U.S. dollar."

The last time our buck was on par with the U.S. dollar was in November 1976.

Courtesy of 24hrs.ca