Canada Is Giddy About the Loonie And Twitting

U.S. Currency Parity Is a Point Of Pride,
but Americans Won't Like the Prices

DOUGLAS BELKIN and JOANNA SLATER
Wall Street Journal 22sep2007

With the Canadian dollar surging against the U.S. greenback, Robert Katzman is dealing with situations they don't teach in Economics 101.

The owner of five strip clubs in Detroit and Windsor, Ontario, says American dancers are heading to Canada to earn the strengthened Canadian currency, and Canadian customers are heading to Detroit because their dollars go further there. He's fighting back by advertising more in the U.S. and offering free limo service to get Detroit men to visit his Windsor clubs.

But like most Canadians, Mr. Katzman is brimming with national pride. "We're feeling for the first time like we've caught up to our big brother," says Mr. Katzman.

After 31 years of playing second fiddle, the Canadian loonie, so-called because of the bird on the dollar coin, overtook the U.S. greenback this week. A nation that has long been the butt of jokes from its neighbor to the south puffed out its chest and grinned.

At the start of the year, one U.S. dollar bought 1.166 Canadian dollars. Late Friday in New York, it bought just 1.0008 — a slide of 14%. On Thursday, the two currencies hit parity for the first time since 1976. In January of 2002, the U.S. currency touched its recent high against the loonie, with one dollar buying 1.6143 Canadian dollars.

The rise is a boon for Canadians looking to buy American real estate, stocks or just about anything for sale at the Mall of America in Bloomington, Minn., which has seen a 15% uptick in the number of Canadian customers this year. But it isn't good news for Canadian hotels or tourist destinations, or exporters of everything from beer and maple syrup to lumber and wheat.

Meanwhile, prices on products sold in both countries are suddenly out of whack. Alan Greenspan's new book, "The Age of Turbulence," for instance, is priced at US$35 vs. C$42.

The Canadian dollar's rise to parity with the U.S. dollar has several causes: high commodity prices globally, the overall weakness of the U.S. dollar, the strength of the Canadian economy and the Canadian government's enviable fiscal surplus.

The result has injected a touch of national giddiness into Canada's traditional reserve as a slew of opportunities present themselves, from real-estate deals south of the border to substantial breaks on college tuition for parents sending their kids to school in the States.

Barry Campbell, a former member of Parliament whose son is studying at Cornell University, in Ithaca, N.Y., says that Thursday was "a good day for any Canadian spending money in the U.S." Mr. Campbell was on a plane returning to Toronto from San Francisco when the man next to him turned on his BlackBerry ("Canadian technology," Mr. Campbell notes) and related the good news. "He said, 'Hey, look at this!' And we smiled at each other."

Even Canada's finance minister, Jim Flaherty, couldn't resist the opportunity to stand up and speak Thursday, soberly telling reporters he has been worried about the fragile U.S. housing market; Canada's housing market, on the other hand, is "remarkably different."

Mr. Flaherty recalled that the last time the Canadian dollar hit parity, in November 1976, he was a "budding young trial lawyer earning about C$15,000 a year."

Of course, the loonie's performance has its down side. Economists fear that Canadian exporters will face an uphill battle since their goods just became more expensive. For Canadians living in the U.S. who are paid in U.S. dollars, it's also not such great news. Noah Charney, a Toronto native who works for a hedge fund in New York, says he has three trips planned to Canada in the near future, one for a wedding and two for bachelor parties. "Maybe my friend will get a slightly less large wedding gift," he says.

Norman Tobias, a Toronto tax lawyer whose son is a sophomore at Harvard, says he's able to tell you "to the penny" what the exchange rate was back in July when the first semester's bill came due. Tuition and board at Harvard costs about $46,000 a year, he says. Last July, that translated into about 52,500 Canadian dollars.

The Canadian dollar's strength, together with the subprime mortgage mess in the U.S., has Mr. Tobias and his wife thinking about property. He figures that "now is probably the right time" to buy Florida real estate.

Paul Godfrey, President and CEO of baseball's Toronto Blue Jays said it might also be time for Canadian sports teams to seize the moment. Every time the loonie goes up a penny against the U.S. dollar, his organization saves US$600,000, he says.

"A lot of folks in the manufacturing sector are being hurt, but we're one of the guys running victory laps around the financial buildings right now," Mr. Godfrey says. In the past few years, the team has increased its payroll from $50 million to $90 million in part because of the strength of the loonie.

Asked whether the Jays could someday outspend the Yankees, he laughed. "C'mon, nobody outspends the Yankees."

In hockey, the six Canadian-based NHL teams haven't brought a Stanley cup back home since 1993, but Ian Clarke, executive vice president of business development for the Toronto Maple Leafs, said even though the team would stay under the league's salary cap, the strength of the loonie has enabled the organization to invest in facilities: better locker rooms, better weight rooms, nicer coaches' offices.

Another Stanley Cup? "It's going to help all the Canadian teams," Mr. Clarke says.

The rise of the loonie is especially gratifying to those who remember the deficits Canada struggled with in the 1990s. "We never allowed ourselves to dream" that the loonie would one day return to par with the U.S. dollar, says Mr. Campbell, the former member of Parliament who spent part of the '90s working on financial policy for the Canadian government.

Thanks partly to the initiatives begun over a decade ago, those deficits are a thing of the past and the Canadian economy is surging on the back of record oil prices. Mr. Campbell suggests the U.S. could learn a thing or two from its neighbor.

"I should not presume to tell the U.S. how to manage its fiscal house," he says with characteristic Canadian reserve. "But you can't cut taxes and fight a war and balance the books."

Mr. Katzman, the Windsor strip-club owner, is philosophical. He says that, last year, 90% of his dancers were Canadians. About 200 of them drove down from Toronto and Montreal to take advantage of the U.S. dollars American men typically paid with.

This year, he has more American women dancing in his Canadian clubs — about 160 — than he has Canadians.

It's a nine-hour trip from Montreal to Windsor, Mr. Katzman explains, and with the loonie as strong as the dollar, the dancers can earn just as much money up there. "As a business decision, it just doesn't make sense," says Mr. Katzman.

source: p.1  21sep2007

Loonie Catches Wounded Buck

Flirtation with parity good for travellers, but not for industry

ROMINA MAURINO AND GARY NORRIS / The Canadian Press

For the first time in a generation, Canada's dollar is staring eye to eye with its American counterpart after reaching parity briefly with the world's dominant currency.

Boosted by high commodity prices and a weakening greenback, the loonie rose yesterday to an intraday high of US$1.0008, a level it has not hit since November 1976 - great news for the energy and import sectors and Canadian travellers, but another sombre milestone for the country's industrial heartland.

The loonie, which has been gaining on its American counterpart since bottoming out below 62 cents in early 2002, has recently been on a spectacular runup from 95 cents at the start of September and from under 90 cents last spring.

Soaring demand for Canadian commodities, ranging from oil and wheat to coal, potash, nickel and zinc, have helped propel the currency, while a weakening American economy has dragged down the greenback against the loonie, the euro and most of the world's other currencies.

At 11:58 a.m., the loonie first crossed the threshold to hit $1.0004, then eased back slightly to close at 99.87 cents US, up 1.37 cents from Wednesday.

The last time the dollar was at par with the greenback was Nov. 25, 1976, as oil prices soared three years after a Middle East war, and when Pierre Trudeau was prime minister and Rene Levesque had just become the separatist premier of Quebec.

That high point for the currency signalled the beginning of a long slide as national unity concerns, falling oil prices, recession and mounting worries about Canada's worsening government finances over the next decade or so scared away foreign buyers.

The loonie began to recover a bit after the former Liberal government began tackling the deficit, taking off in recent years because of massive global demand for Canadian resources and the solid growth in the economy, especially in the oil-rich West.

"What the story is really saying is that Canadians are getting richer relative to the U.S. and hence Canadian assets are getting richer compared to the U.S.," said CIBC economist Jeff Rubin. "It really represents a very dramatic reversal of fortune from what would have happened 10 years ago, when our resource economy made us look rust belt compared to the technological dynamo of the U.S. economy."

The currency had advanced US1.38 cents Tuesday after the U.S. Federal Reserve cut short-term interest rates by half a percentage point, undercutting the attractiveness of the American currency.

source: 21sep2007

Canadians Celebrate Loonie's Parity with US Dollar

Agence France-Presse 21sep2007

MONTREAL — Canadians cheered Friday for their beloved loonie, reaching parity this week with the US greenback for the first time in 31 years, but consumers are not yet benefiting, and manufacturers are reeling.

The loonie, a sobriquet given to the Canadian dollar, worth a mere 62 US cents five years ago, reached parity with the US greenback in morning trading Thursday, amid soaring commodity prices and fears of a slumping US economy.

It is the first time since November 1976 that it has soared so high, and was holding steady Friday in global currency markets.

Economist Maurice Marchon of HEC Montreal business school told AFP this lightning-fast appreciation of the Canadian dollar is "globally positive."

But, Canadians are continuing to pay more for American products, as much as 24 percent more for the same cars, the same magazines and the same greeting cards, according to a study by the Bank of Montreal.

The bank adds that Canadian retailers must eventually lower their prices, or risk losing business to cross-border shopping in the United States.

Canadian manufacturers, who rely on US sales, however, are "the big losers," Marchon said. "Their products are suddenly less competitive in the United States."

Some 80 percent of Canadian exports head south to the United States, and 66 percent of its imported goods originate in the United States.

Finance Minister Jim Flaherty acknowledged Thursday that the soaring Canadian dollar has "put some pressure on manufacturers, particularly the suddenness of the depreciation of the US dollar."

But a high loonie also "helps Canadian manufacturers acquire new technology," he added.

Perrin Beatty, president of the Canadian Chamber of Commerce, commented: "For every penny that the loonie goes up, we're looking about a billion and a half dollars more in the manufacturing sector that is lost."

He underscored that Canadian firms had already purchased a lot of US equipment, machinery and tools in recent years to boost their productivity and remain competitive.

But, he added, they must continue to increase their productivity because "increases in the loonie have stolen away the gains that they have made" thus far.

Since January 2003, the situation has cost 268,000 high-paying jobs in Canada's manufacturing sector, primarily in eastern Ontario and Quebec provinces, a fallout denounced by union bosses as a "catastrophic."

However, a net 1.3 million jobs have also been created, mostly in the service industry and western Alberta province's booming oil sands industry, during the same period.

As well, unemployment has remained at about six percent — its lowest level in 33 years.

"A computer programmer earns as much as an auto worker at GM," commented Marchon.

The Canadian tourism industry also fears the worst, with fewer Americans expected to visit Canada's hinterland, and more Canadians opting for US trips over vacations in their own vast backyard.

Indeed, the number of Americans traveling north fell 5.2 percent in July, year-over-year, to its second lowest level in 35 years, Statistics Canada reported Thursday.

source: 21sep2007