Business

Rate cut powers loonie above 99 cents US

The loonie's strong flight continued Tuesday night as it crept above 99 cents US in overnight trading after North American markets closed.

The loonie's strong flight continuedTuesday night as it crept above 99 cents US in overnight trading afterNorth Americanmarkets closed.

Earlier, it hadclosed in regular trading above98 cents US for the first time since Jan. 25, 1977. The Canadian dollar gained1.36 centsto close in regular trading at98.64 cents US.

The loonie's big move was helped along bythe Federal Reserve'sunexpectedly largecut in a key interest rate Tuesday afternoon.

Therate cut left the U.S. federal funds rate at 4.75 per cent, while the counterpart rate in Canada remains at 4.50 per cent. That dramatically narrowed the spread between the two rates and made Canadian dollars a lot moreattractive.

Talk of "whether" the dollar would hit parity with the U.S. currency seemedto be supplanted by talkof "when" itwould reach that milestone.

The Canadian dollar's rise against the U.S. greenback has been stunning— up 14 per cent so far this year and up about 60 per cent since early 2002.

That's when the commodity price boom began to exert its loonie-positive effect as the price of many resource products that Canada exports in abundance began to climb — with oil being anotably strong performer.

The loonie iswidely seen as a "petro currency," meaning it is closely tied to the rise and fallof oil markets.The price of oil was hitting more new highs on Tuesday, rising 94 centsto close at $81.51 US a barrel.

The rising strength of the Canadian dollar is making life even more difficult for Canadian companies that export to the U.S.That includes many manufacturing companies and forestry companies.

OnTuesday, SFK Pulp Fund cut its monthly payout to investors by 60 per cent, citing the higher dollar.

"This reduction is a direct consequence of the continued strengthening of the Canadian dollar against its U.S. counterpart that deeply impacts the Canadian forest and paper industry,"CEO Andre Bernier said.

The Canadian Auto Workers on Tuesday called on the Bank of Canada to match or exceed the Fed's rate cut.

"The U.S. Fed is taking the broader view, recognizing that central bankers have responsibility for the whole economy, not just inflation," said CAW economist Jim Stanford.

"It's time the Bank of Canada took a similarly broad view."

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