Loonie plunges below 64 cents US
By JAMES MCCARTEN -- The Canadian Press
ÿTORONTO (CP) -- A global economic earthquake shook the Canadian dollar from its tenuous perch Wednesday, sending it skidding below 64 cents US for the first time ever.
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ÿThe epicentre was in Russia, where a full-blown currency panic helped hand the loonie a loss of 0.67 cent to end the day at 64.88 cents US, the latest in a long string of record low closes.
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ÿAt one point Wednesday, the loonie was down nearly nine tenths of a cent, the currency's second-worst daily performance in its 140-year history. The worst came Oct. 23, 1995 in the days leading up to the Quebec referendum on separation, when the dollar closed 0.88 cent lower on the day.
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ÿUnder relentless selling pressure, the dollar also touched a new trading low Wednesday, 63.69 cents US, representing a drop of .86 from its close the previous day.
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ÿThe plunge came despite the repeated efforts of the Bank of Canada to help by buying up Canadian dollars -- a tactic that no longer seems to have much of an effect, said Jeff Cheah, an analyst with Standard and Poor's MMS in Toronto.
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ÿ"I don't think the Bank of Canada can do much to control the Canadian dollar's slide, and if anything it would be a symbolic move," Cheah said.
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ÿMounting fears of an international economic crisis has got investors around the planet flooding into U.S. money markets in search of a safe haven, he added.
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ÿThe resulting whipsaw effect on the Canadian money market, coupled with depressed commodity prices, are the main reasons for the dollar's dismal performance.
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ÿ"(Investors) are very nervous, and when they're nervous perhaps they don't think rationally, and when they don't think rationally, the one thing they want to protect is the value of their assets," Cheah said.
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ÿ"The one currency that can offer that right now is the U.S. dollar."
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ÿThroughout the last three months, which have been marked by repeated record lows for the currency, analysts have been arguing that the pace of the decline is more important than the decline itself.
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ÿWednesday's precipitous drop had a chilling effect on the market and raised fears that perhaps the central bank would be forced to raise interest rates by as much as two percentage points or even more to protect the currency.
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ÿThat prospect spooked investors, who sold off stocks on Canada's largest exchange. The TSE's benchmark 300 composite index plunged 84.47 points to close at 6,171.54.
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ÿ"Clearly, all hell has broken loose in the global financial system," said Jim Stanford, chief economist for the Canadian Auto Workers union.
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ÿ"The Bank of Canada has got to be under incredibly intense pressure right now," he said. "If they jack up interest rates, the impact on us is clear: it's a slowdown and probably a recession."
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ÿSuch a rate increase would have such damaging ramifications for the Canadian economy that the bank is likely not even considering it, said Cheah.
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ÿPrime Minister Jean Chretien told reporters in Moncton, N.B. the same thing he's been saying for weeks: that the Canadian dollar's problems are not the problems of ordinary Canadians.
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ÿ"The turmoil is in the world at this moment," Chretien said. "There are a lot of difficulties in terms of stability of currencies around the world.
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ÿ"When you look at the Canadian situation, we have all the fundamentals right, all of them."
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ÿAmong those, Chretien said, are Canada's falling jobless rate, deficit reduction plan and lack of inflation -- something experts warn may soon be changing as a result of the loonie.
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ÿStanford said the most worrying dimension of the dollar's problems is not the prospect of a rate increase, but the impact on consumer confidence -- especially if predictions of rising prices this fall on a variety of goods imported from the United States prove true.
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ÿ"What we're really going to feel as the months go on is the general instability, as investors start worrying and consumers start worrying," he said.
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ÿ"I think the time has come for them to start worrying. If everybody gets worried and starts socking away money for a rainy day, that in and of itself brings about the rainy day."
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ÿCanada imports 38 per cent of what it consumes, with 78 per cent of that coming from the United States. So, when the Canadian dollar falls 11 per cent against the U.S. greenback in just six months, it's going to affect prices, said Bob Armstrong, president of the Canadian Importers Association Inc.
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ÿ"After Labor Day you will start to see it," Armstrong predicted. "And definitely before the Christmas season."
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