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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (544)	7/15/2001 8:06:30 PM
From: Gofer	Read Replies (1) \| Respond to of 1643

Argentinian crisis takes down dollar globeinvestor.com By MARISSA NELSON 08:35 GMT-04:00 Sunday, July 15, 2001 The Canadian dollar tumbled Friday as nervous investors, worried about the financial crisis in Argentina, flocked to safer currency. The dollar traded below 65 cents (U.S.) for much of the day, the first time it has sunk that low in intraday trading since June 1. It recovered slightly late in the day to close at 65.07 cents, down 0.38 cents from Thursday. It was end of a bad week for the dollar, which nosedived 0.70 cents during the past three days. The currency has lost 1.14 cents since July 3, when it closed at a five-month high of 66.21 cents. Fears that cash-strapped Argentina would be forced to default on its $128-billion debt sent global emerging markets into a tailspin this week. Investors pulled out of secondary currency markets — such as Canada — and headed for safe havens, mainly the U.S. dollar. The situation is also sparking recollections of the Asia crisis of 1997-98, when financial problems in East Asia quickly swept around the world. While the dollar dropped significantly, economists said the fundamentals of the Canadian economy are still solid and that yesterday's performance was probably only a pause in a rally that has lasted three months. "We have to keep in mind that the underlying economic fundamentals for Canada are still positive," Robert Palombi, an economist with Standard & Poor's MMS, said yesterday from his Toronto office. While the dollar is now well below some of the recent highs, Mr. Palombi said indications, such as the rebound in U.S. consumer confidence in the second quarter, are good signs the dollar will recover fairly quickly. "Even if we do see further weakness in the currency, it shouldn't get too out of hand," he said. "We should look for the currency to go back on an appreciating track, say in the next three weeks to a month." People are nervous about Argentina because it is closer to home than Asia, Mr. Palombi said, but he added, "this is not the same crisis situation we were seeing in 1998. "The Argentine government seems to be making some attempt at coming up with a fiscal reform that will help to fix things. That's been enough to ease concerns to some extent," he said. David Watt, a financial economist with BMO Nesbitt Burns Inc., said that if the Argentine crisis does spread, it could sink commodity prices "at a time when global economic growth is still anemic." With that threat comes an element of risk with the Canadian dollar — a risk some investors won't take. "Some people are saying, 'Well it's done well for me recently so I'll take a profit and wait and see what happens for the next couple of weeks,' " he said. "Hopefully we'll skate by [the Argentine crisis] without a lot of difficulty. So it will be short-term pain for the Canadian economy." Both Mr. Watt and Mr. Palombi said there were several issues playing into the drop of the Canadian dollar. "The [U.S.] retail sales report for the month of June came in on the weak side," Mr. Palombi said. "And that uncertainty is also spilling over into a weaker Canadian dollar." The coming week may well prove to be a critical one, with the Bank of Canada making its next interest rate announcement on Tuesday and Statistics Canada releasing the inflation-monitoring consumer price index for June on Friday. "The economic data could be on the weak side," Mr. Palombi said, adding that weak numbers would increase the selling pressure. "It could help undermine the currency." The Bank of Canada is widely expected to cut its benchmark overnight rate by one-quarter of a percentage point, to 4.25 per cent from 4.5 per cent. "Investors are monitoring things on a day-by-day basis and waiting for the situation to unfold," Mr. Palombi said.