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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: RealMuLan who wrote (21620)	1/18/2005 12:20:36 AM
From: RealMuLan	Read Replies (1) of 116555

More firms feeling pinch of strong currency: report By Ottawa Business Journal Staff Mon, Jan 17, 2005 2:00 PM EST More than half of businesses are feeling the pinch of a strong loonie and this is having an impact on both revenue expectations and hiring plans, according to a report released on Monday. The Bank of Canada surveyed Canadian businesses late last year to gauge the impact of a strong loonie on their collective bottom line. A strong domestic currency makes Canadian goods more expensive on overseas markets. This weakens demand, impacting the export and manufacturing sectors. Over the past two years the loonie has appreciated about 30 per cent vs. the U.S. dollar. The central bank said 55 per cent of respondents to its survey said they are feeling the pain of a strong loonie, compared with only 45 per cent of respondents in an earlier survey on the subject. The survey also reaffirmed that is companies involved in manufacturing and exporting that are feeling the most pain. These companies expressed a much more negative outlook for revenue growth than companies in other sectors of the economy and were also less likely to hire in coming months. Such grass roots data is used by the Bank of Canada in its decisions on interest rates. Lower interest rates keep borrowing and financing costs low, encouraging more spending by consumers and business. This in turn provides stimulus to the economy, helping to the offset the impact of the strong currency. Another key report for Bank of Canada officials to chew upon comes next week when Statistics Canada releases the latest inflation data. After two rate hikes late last year, the Bank of Canada's key policy interest rate is at 2.5 per cent. With evidence mounting that the strong loonie has stifled economic growth, analysts expect the central bank to hold the line on further rate hikes until later this year. ottawabusinessjournal.com

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