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To: Enigma who wrote (16997)	8/31/1998 9:02:00 AM
From: Alex	Read Replies (3) \| Respond to of 116816

Dollar's destiny tied to new figures By Steven Theobald Toronto Star Business Reporter After last week's wild ride, currency traders will be looking at several key indicators this week for clues about what's next for the gyrating loonie. Canada's second-quarter GDP numbers and August employment figures are due out, and the Bank of Canada will be reporting its foreign reserve levels, disclosing just how much it intervened to prop up the dollar. The Canadian dollar, which rebounded Friday to close at 64.08 cents U.S., up 0.77 cents, started the week on a positive note. In Asian markets yesterday, the dollar continued to rally, hitting a high of 64.26 cents in early-morning trading. Randall Powley, vice-president at Scotia Capital markets, thinks the worst may be over. ''Last week felt very much like a capitulation blow-off, so I'm not surprised that we are getting a bit of a bounce. ''It happens at the end of a serious bear run.'' But Powley concedes the dollar could still be hurt by any unexpected bad news on the international front. The economic crisis in Russia, Japan's lack of action in reforming its debilitated banking system and worries that the financial crisis is spreading to Latin America will hold the attention of currency traders. ''We are not the masters of our destiny, at least not for the time being,'' said Fred Ketchen, senior vice-president and director of equity trading at ScotiaMcLeod Inc. The possibility of a world-wide economic slowdown threatens to put downward pressure on already plummeting commodity prices. Canadian economists are quick to note the country is not as dependent on resource-based exports as international financial markets perceive it to be. Nevertheless, commodity prices continue to be cited as a reason for the dollar's woes. Volatility in global markets isn't over yet and promises to keep life tense for currency traders, Ketchen said. Japan's stock market was rebounding from 12-year lows in trading today and South Korean stocks rose on government plans to stimulate the economy. But stocks fell in Australia, Singapore, Taiwan, the Philippines and Indonesia. And Hong Kong's Hang Seng stock index plunged as the government drew back from a buying binge aimed at hurting speculators betting against the city's stocks and currency. The economic indicators that will be released this week will provide a clearer picture of the Canada's economic health. ''The focus right now is on international developments,'' said Craig Wright, deputy chief economist at the Royal Bank of Canada. ''But if things are relatively calm, these indicators will gain importance.'' Canada's gross domestic product numbers for the second quarter are due today. The consensus is economic growth has slowed to an annualized rate of 1.7 per cent, down sharply from 3.7 per cent in the previous quarter. Since financial markets don't like surprises, this report might spell trouble if the numbers come in lower than expected. ''It could trigger fears that the economy is slowing down much more rapidly than we think,'' said Rob Palombi, an economist with Standard & Poor's MMS. Making matters worse, the Bank of Canada hiked its trend-setting interest rates a full percentage point Thursday to defend the dollar. Higher interest rates slow economic growth by decreasing business investment and dampening consumer spending. ''Slower growth might trigger concerns about our fiscal situation,'' said Palombi, citing the federal government's still massive public debt. An economic slump would decrease tax revenues and put pressure on Ottawa to stimulate growth through tax cuts or increased spending. Both translate into smaller budget surpluses and stalled debt repayment. Statistics Canada's employment report for August, out Friday, is also keenly awaited. Forecasters are predicting an increase of 31,000 jobs and the unemployment rate to hold at 8.4 per cent, thanks mainly to the end of strikes at General Motors and in the Ontario construction sector. ''If that doesn't happen and we get job losses in some sectors, that is also going to fuel fears of a slowdown,'' said Palombi. The foreign reserve figures, out on Thursday, will also get a lot of attention. Market players want to know exactly how much the central bank has intervened in the foreign exchange market buying up unwanted Canadian dollars in an attempt to prop up the exchange rate. If the Bank of Canada was in there more than expected, that indicates the dollar was under even more pressure than previously thought, said the Royal Bank's Wright. ------------------------------------------------------------------------ Discuss our plunging dollar ------------------------------------------------------------------------ One of the key questions right now is what the American central bank plans to do with U.S. interest rates. Ever since the Asian crisis took root, investors have put their money into the U.S. ''The U.S. is one of the few economies globally that is in a position to help things out,'' said Wright. ''One way would be to cut interest rates.'' ÿ www2.thestar.com