Loonie closes above parity

The Canadian dollar closed above parity Friday for the first time in almost 31 years, as the U.S. greenback continued its dramatic fall against major world currencies.

According to Bank of Canada data, the loonie closed at $1.0052 US, up two-thirds of a cent from Thursday's close. Expressed another way, it means that a U.S. dollar is now worth a little less than 99.5 cents in Canadian money.

The loonie had reached parity with the U.S. currency on Sept. 20 — the first time since November 1976 — but had failed to close at or above that level.

The loonie's rise came in spite of a weaker-than-expected GDP reading for July. Statistics Canada said the economy grew by 0.2 per cent that month, while economists were forecasting growth of 0.3 to 0.4 per cent.

In Friday trading, the greenback fell to another record low against the euro for the seventh consecutive day. Traders are expecting the U.S. Federal Reserve will cut lending rates further to help ward off a recession.

That expectation got a boost from the release Friday of core inflation figures that showed inflation running at its lowest level in almost four years.

Bloomberg reported that the Canadian dollar rose 6.2 per cent against the greenback in September — its biggest monthly rise since the financial data provider began tracking the data in early 1971.

Since the start of the year, the loonie has gained 17 per cent against the U.S. dollar — more than any other major currency. The euro, for instance, has risen seven per cent against the greenback year-to-date, while the British pound and Japanese yen are both up about three per cent. 




Who cashes in on the soaring loonie?

              The rising Canadian dollar-which reached parity with the U.S dollar and, by some estimates, is destined for even greater heights-has been a considerable drag on the economy. Just ask any Canadian manufacturer how it feels trying to sell their suddenly more expensive products to the U.S.. The upside of this shift, however, is that the high dollar gives the average Canadian a nice boost in purchasing power. At least in theory it does.
But even with the meteoric rise of the dollar, consumer prices have remained surprisingly high. In fact, the rising dollar has actually corresponded with a rise in consumer prices, says a recent TD Economics report. Since last January the price of consumer goods has increased 2.1 per cent-a trend that seems to fly in the face of basic economic theory. 
The culprit in this upswing is retailers, says ' the report. "We do have a reduction in import prices. We also have a reasonable reduction in producers' prices," says Millan Mulraine, the author of the report. "There's some disjoint there and the benefit goes to the retailers:" One factor at work is the higher cost that services and distribution plays on the price of goods before they're sold, he adds. Nevertheless, shoppers might be better off nowadays buying on the Internet or driving across the border.
To make matters worse, the rising dollar is also not doing its part to fight inflation. In theory, it should put a crimp on exports, increase domestic buying power and put a lid on inflation at the same time. But without the corresponding drop in consumer prices, those inflationary pressures remain.
After years of tolerating higher prices for everything from furniture to electronics because of the persistent weakness of a currency once derided as the northern peso, Canadians figured this surge might finally offer relief. Turns out the only payoff is going to the ones behind the cash register.