I think the Canadian dollar is actively restrained as part of government policy. This is based on the mistaken assumption that the country is better off with a weak dollar, and that our economy is more competitive. Such nonsense is yet another example of lazy government relying on outdated decisions. For reference, note that Japan recently announced a major bid to restrain the rising Yen.
Consider that manufacturing now accounts for a much smaller chunk of the total export market. We are not competitive with Asian exporters no matter how much more our dollar is devalued. However, we do export a lot of resource products, like wood, energy, and metals. These are priced at world market levels no matter how weak or strong our dollar may be, and if we encourage a higher dollar, importing equipment and upgrading productivity would be cheaper for Canadian companies.
Also, our companies are mostly trading on Canadian exchanges, and a weak dollar means they can be acquired by foreign firms much cheaper. The BHP takeover bid for Potash Corp is just the latest example of this. Canada is better served having our largest corporations remain headquartered on our soil, where policy decisions can be made in the interests of our local communities. Does anyone think that the bunfight at Vale over the operations in Sudbury are good for Canada? Would this crap have dragged on so long if Inco was still a Canadian company?
To answer the question, I think the Canadian dollar will head higher no matter how the stupid government tries to suppress it. There are other nations that will buy the CDN just to hedge on a resource base currency. I think energy prices are going higher no matter what happens in the world economy, and as our production grows the dollar will rise with it. I think Canada will perform much better than many other nations as the economic crisis kicks back in, and therefore our currency will appear much safer and more attractive. So long term, I think the CDN will be back above par with the USD. I doubt we will see the mid-80s again.
cheers!
mike
