The first few weeks in 2014 have already proven interesting. Starting the year off at 94 cents U.S., the Canadian dollar fell to 89.85 cents on Jan. 23, the lowest in four-and-a-half years. This begs the questions: Has the bottom fallen out of the high Canadian dollar? Has the Flathead Valley’s good luck finally run out? Then on Feb. 7, the Canadian dollar reversed direction and saw gains for the first time in 2014.
It all began about Jan. 6 when the Canadian Minister of Finance publicly announced that the Canadian dollar had been overvalued for some time and it was severely hurting the Canadian manufacturing sector. The political posturing had begun. As the Canadian dollar began to fall, the minister indicated while that is favorable for the Canadian trade balance, it still had a long way to go. This combined with the governor of the Bank of Canada holding interest rates steady, and the inflation rate in Canada only being 1.2 percent. There was no need to cool off an already cool economy. With positive job numbers coming out of the U.S. as well as other economic indicators suggesting the U.S. economy was recovering, the U.S. dollar rose against the Canadian dollar. The timing of these factors could not have been closer together and many thought the Canadian dollar was doomed.
But on Feb. 7 strong positive data came out of Canada and the dollar got a boost from the increase in jobs and the lower unemployment rate. There is also strong indicators of the advancement of the Keystone XL pipeline, which has caused favorable trading of the Canadian dollar. On Feb. 11 the Canadian federal government’s 2014 budget pledged a surplus by 2015. This along with Canada’s AAA credit rating eases pressure on the Bank of Canada to implement measures that would be otherwise needed to support the economy. And the next day the price of crude oil, Canada’s largest export, rose to the highest in four months coupled with strong trade in many other commodities Canada trades. It is not just one factor that affects the Canadian dollar. The commodity currency realized steady trading over 90 cents for over a week and trading is now over 91 cents U.S. World traders are betting the Canadian dollar fell too hard too fast and too far. It was the worst start to a year in four decades. They believe the volatility is over, and stability of the Canadian dollar is back.
What we must remember, just as in the movie Field of Dreams: Build it and they will come. Well you have built it, the family businesses, the box stores, the hotels, and the events and exceptional hospitality and we are coming. In a few days the Montana Pond Hockey Tournament will take the ice, in September the third annual Montana Dragon Boat Festival and in between, Canadians are coming. Neither rain nor snow will keep the Canadians away – not even a dollar trading below 90 cents. Leave the welcome mats and Canadian flags out. We are still coming!
Donna Townley is a Canadian economist and instructor at the University of Lethbridge in Alberta.