Well, “intervention talk” is in the air again! This time it’s the Bank of Canada!
Why are they so concerned with their currency? Well the USD/CAD exchange rate has dropped from 1.30 to 1.07 (2,700 pips) in mere months (5 months to be exact).
This can wreak havoc upon a company that is trying to figure out how to hedge their currency exposure so that it doesn’t eat into the profits of their business…and the central bank realizes this too.
That’s why Central Bank Governor Carney, together with Finance Minister Flaherty are coming together to attempt to “jaw bone” the currency lower (in other words bring the USD/CAD exchange rate higher).
Canada’s Fed Governor has stated that the gain in the currency is a major risk to economic growth…adding that “he has the flexibility to deal with it”. The Finance Minister backed him up by saying “steps could be taken to dampen the (Canadian) dollar”.
Governor Carney is attempting to lessen the appeal of the loonie by stating that interest rates are likely to remain unchanged through at least the 2nd quarter of 2010.
You see, when you are a Canadian company and you’re trying to hedge against currency fluctuations of 5-10% in a short amount of time, it’s tough. (They really need my services. Hehe!)
Canada’s factory orders have been hit (down 29% since last July) as a result of the strengthening currency. That couldn’t come at a worse time because at the same time you’ve had General Motors and Chrysler shut down Canadian plants, dealers and parts suppliers. Manufacturers have had to fire 221,500 workers as a result.
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