The dollar has declined along with commodities -- the perception being that we remain a country dominated by commodity production and export -- "hewers of wood, drawers of water". This perception is no longer true but the traders don't make much money out of objective reality, do they?
Opinion is divided about the Canadian dollar: can the government defend it? should the government defend it? and so on. Of course those who depend on selling to the US market don't seem terribly worried about the health of the Canadian dollar.
However, the decline in the dollar has been used by right-wing ideologues (Harris government in Ontario, Klein in Alberta, the Reform Party opposition in Ottawa) to argue that only massive federal tax-cuts can restore the market's "confidence" in our economy. Perhaps because so many right-wingers are in power now in Canada they seem less enthusiastic about economy-killing interest rates hike as a solution.
Meanwhile, most mainstream economists point out that the market, having other more pressing disasters to consider, really doesn't care what we do north of the border. Most of them recommended against a rate hike.
Nevertheless, against sane advice our beloved central bank jacked up short-term interest rates. The immediate reaction from currency traders was to drive our dollar down even further. Ironically, they are said to be concerned about the possibility of the country falling back into recession because of higher interest rates. Rumours abound that the Bank will be forced to eat crow and reverse the hike in the near future.
As a side note, the Bank of Canada was one of perhaps three central banks who pursued with an insane intensity the doctrine of zero inflation (and high interest rates) in the early 1990s. The result was a made-in-Canada recession, deeper and longer than that experienced in the United States. The high dollar and punishing interest rates brutalized the country's largest provincial economy in Ontario and led, I would argue, to the ejection of a (comparatively) left-wing government from office.
Turning to the markets, the Toronto Stock Exchange suffered a large loss on Monday -- though not on the same scale as the Dow -- and staged a tepid rally today (up 0.1%).
Jordan Berger
> -----Original Message-----
> From: Les Schaffer [SMTP:godzilla at netmeg.net]
> Sent: Tuesday, September 01, 1998 6:08 PM
> To: lbo-talk at lists.panix.com
> Subject: the shape of things in canada...
>
>
> havent heard much talk here about how canada will fare in the
> slump/crash/glitch/bounce/whatever ...
>
> a best-friend from high school who now lives in Montreal Canada just
> wrote this to me in response to a 'hows things up there'
> query:
>
> >> It's financial meltdown up here. Our dollar is down to 63
> >> cents US; interest rates have gone up by over 1% in the last
> >> two weeks, and there's no end in sight. Imports from the US
> >> are skyrocketing, and that includes fruits and vegetables to
> >> get through the winter; they're talking increases in grocery
> >> prices for imported stuff of over 20% this winter. You guys
> >> will probably survive, but I fear we are in for hell up here.
> >> I've been flashing on images of the 1920's depression.
>
> whats all this about imports skyrocketing?
>
> les
> --
> ____ Les Schaffer godzilla at netmeg.net ___| --->> Engineering R&D <<---
> Theoretical & Applied Mechanics | Designspring, Inc.
> Center for Radiophysics & Space Research | Westport, CT USA
> Cornell Univ. schaffer at tam.cornell.edu | les at designspring.com