Will Canada Save the Loonie?

The loonie goes up and Canadians are divided into two groups. Those who rush the US border to get in some early holiday shopping, and those who panic and wait for our economy to stall completely.

Lately, the loonie has been showing signs of dropping in relation to the American greenback, but analysts and financial gurus are still administering warnings of the peril to our economy should the Canadian dollar stay strong. Predictions about the future of the loonie have ranged to parity with the US dollar to a dramatic drop if our government intervenes. Meanwhile, the average Canadian is still going to work, to the gas station, to the grocery store and still paying the same prices for just about everything.

While the loonie enjoys time on a roller coaster ride, our paycheques and expenses see no difference. Are we in trouble? Is the fuss and drama about the loonie warranted? Should we open US money accounts and just enjoy the ride, or start a petition demanding our country’s leaders bring our dollar down? (I know what you re thinking, open the account first, and then start the petition.)

Can Canada save the loonie from despair? Yes, of course. But only if it’s necessary. This is not the first time we have seen the Canadian dollar rise to dramatic levels. In the natural course of our economy, the dollar takes dips and rises on a regular basis. It s only when it approaches the high end of the American dollar that the experts get worked up.

With global investors showing more interest in Canada, the loonie is being driven up by demand. Unfortunately, other aspects of our economy suffer, since it makes Canadian products more expensive and therefore less appealing. Currently the government has no plans to take dramatic actions against the rise of the dollar, since history has shown us that the loonie tends to come back down naturally.

To keep perspective, there are a couple things that accelerated the increase in the loonie. The Australians took the plunge and increased their key interest rate, leading to global money gurus to speculate Canada would follow, causing a flurry of interest in Canadian money markets.

The American economy is suffering yet more employment losses and remains unstable, which weakens their dollar globally. Since the weight of our dollar is measured against the greenback, we got a little better, while the States got a little worse. Canadian government intervention certainly will not strengthen the American economy, so at this point it s a little premature.

The nature of all things financial, ultimately falls prey to humanity. Prior to the Bank of Canada s key rate announcement, we saw the loonie on the rise, as so called experts insisted the Canadian rate would go up. Bank of Canada stood fast keeping the key rate at .25 percent, and wouldn t you know it, the loonie started creeping back down again.

Every action by every person has a consequence. Good or bad, the force of our economy and our dollar lies in the hands of people who think they know what to do in any given situation. The global recession was brought about by well educated leaders of corporations and institutions who took risks assuming there would be a big pay off.

The truth is, it s too early for our government to take charge of the dollar. Prudent Canadian tradition dictates we will wait until the storm of activity passes before we start the cleanup effort. We are not waiting to see whether the feds will take action, rather, we are waiting to see if they will need to.