Tuesday, May 16, 2006

Before the Crying Starts

Anyday now we will be hearing the manufacturing lobby spokesperson, former Mulroney Cabinet Minister, Warren Perrin and the Council of Canadian CEO's along with their earstwhile ally in the Canadian Auto Workers Jim Stanford starting to decry the high Canadian dollar.

The fact is that it is now the international currency of choice as the Petro-dollar. And our commodity prices for metals and ores, shows a boom in the mining industry, and of course a boom in the Canadian loonie. While the oil and mining sector directly impacts on the Toronto Stock exchange. That boom is resulting in further monopolization of the mining sector in Canada, through a heated round of mergers and aquistions.


Mining merger mania timeline

Multibillion-dollar mergers are breaking out across the mining sector and a few mutual funds are well-positioned to reap the gains.


The real reason that there will be an impact on Canadian exports to the US is NOT because of the loonies rise but because of a tightening of the American market due to the US dollar's decline.

So before David Dodge and the Bank of Canada start screwing around with interest rates, that is raising them, which has had no effect on the loonie, we should remember this.

That the loonie is now seen as the Petro-dollar and a secure investment, which will attract more international finance, to offset those losses incurred by reduced market purchases from south of the border.

As well our position of exporting into the US market has made us popular with foreign manufacturers such as automobile companies, and Mittal Steel.

Of course the last time we had high foreign investment in the Canadian dollar and in Canada we had the right wing whining about debt and deficits and how we owed, we owed, to foreign investors. Ya just can't win with these guys. Ever.

On the rise
What impact will a strong Canadian dollar have on Durham Region?


Staying cost-competitive in relation to the United States is vital for a manufacturing industry already suffering from job losses.

Earlier this year, KPMG released its Competitive Alternatives report, citing Canada as the cheapest place to do business among G7 countries and giving Canada a 4.5 per cent advantage over the U.S. when it comes to overall cost of doing business.

But with the stronger dollar, will this advantage erode?

Mark MacDonald, director of Competitive Alternatives for KPMG, says yes, but insists that the value of the Canadian dollar against the American is only one factor that goes into determining overall competitiveness.

"It is very case specific," he said. "Having said that, it is certainly not a secret that people in Canada are concerned."

For Mr. Myers, the concern goes deeper than just a strong dollar.

"It is also the reason behind the increase," he said. "Part of it is an increase in the cost of doing business, with energy prices going up and commodity prices going up. The other part is a weakening American economy."

That worries Mr. Myers because it will mean that sales in the U.S. can decline.

"It is easier to adjust to a higher dollar if your sales in the U.S -- your major market -- are booming, but right now there are indicators that those sales are going to weaken in the course of the coming year."



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