Why is the loonie not doing better?


Q

– Why is it that our dollar does not reflect our strong economic growth? Supposedly, when an economy is doing so well foreign investment tends to flow to that country, raising the value of the currency. Can you please explain to me why this isn’t happening to our currency? – L.C.


A

– I wish that I could explain. It’s a question that has stumped our best economists. It appears to be a matter of international investors ignoring the fundamentals and going for the perceived safety of the big U.S. economy. The U.S. dollar and the Swiss franc have always been the currencies of preference in troubled times, while lesser currencies such as ours get sideswiped.

If it makes you feel any better, Jeffrey Rubin, chief economist of CIBC World Markets, recently predicted the loonie would reverse its course because of expected interest rate hikes in this country and would move up to US$0.70 by the end of 2003. Since he’s been bearish on our dollar for years, that shift in his viewpoint could be significant. – G.P.