Thaindian News

Toronto, Aug 3 (IANS) The Canadian economy is yet to get back on the revival path and the runaway Canadian dollar is threatening to thwart any hopes of recovery.
The loonie, as the Canadian dollar is called, has already reached 92.5 cents US after having sunk as low as 77 cents US in March this year.

In the last two weeks alone, the Canadian currency has risen as much as six percent against the US greenback.

Amid the global recession, the loonie is the only among the 16 major currencies to have risen as much as 6.6 percent against the US dollar in July.

Market analysts fear that if its rising trend continues the loonie could reach parity with the US dollar by the end of the year.

The government and the Bank of Canada are worried that the rising loonie could offset recovery, hitting manufacturing and tourism into the country.

In this resource-rich country, the value of the Canadian dollar varies with the global prices of its commodities and oil.

In the past two weeks as the prices of commodities and oil have jumped, so has the Canadian dollar, rising six percent against the US dollar.

The rally in the Canadian equity markets has also fuelled the currency’s rise as investors abandon the safety of the US dollar and venture into fresh buying.

Market analysts say if the loonie crosses the 95 cents US mark, the central bank (the Bank of Canada) may be forced to intervene as any further rise in the currency will erode any chances of recovery.

Though the central bank has not intervened to contain the loonie since 1998, its hands may be forced once the currency crosses the 95 cents mark.

The bank could accomplish this task by increasing money supply to bring the loonie artificially down - a step that will not be welcomed by other nations.

The bank could also ease credit supply to rein in the runaway currency.

But for the time being, Canadian shoppers and tourists to the US can have fun as a higher loonie buys them a lot now.