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LOONIE TO KEEP ON ROCKING IN 2005; SOME
FORECASTERS SEE IT AT 90 CENTS US IN A YEAR
The Toronto Sun
Thu 30 Dec 2004
Page: 72
Section:
Business
Byline: BY GARY NORRIS, THE CANADIAN PRESS
Source:

THE LOONIE continued its Godzilla impersonation in
2004, trampling on the competitiveness of Canadian exporters but warming the
hearts of snowbirds. The outlook is for an ongoing rampage.

For once, economists were in agreement going into 2004, and they turned out
to be right.

Forecasts a year ago called for further strengthening of Canada's currency
against the U.S. dollar, though it wasn't expected to bulk up as startlingly
as the 21% gain in 2003 from 63 cents US to over 77 cents.

The U.S. dollar's weakness against most other major currencies increased
through 2004 amid worries that U.S. fiscal and current account deficits are
each threatening to reach half a trillion dollars.

The loonie slipped to the 74 cents range early in the year but then rose
steadily to a peak close of 85.04 cents on Nov. 26.

After Bank of Canada governor David Dodge expressed concern about the
currency's economic impact and abstained from raising interest rates Dec. 7,
the dollar receded but still remained at the highest level in almost 12 years.

It roared back from a holiday break yesterday to close at 82.62 cents, up
1.30 cents on the day.

Economists are again united in forecasting continued Canadian dollar
strength in 2005, although their outlooks for the currency's level a year from
now are spread between 80 cents and 90 cents.

Aron Gampel, deputy chief economist at Scotiabank, which provided a 90
cents forecast, predicts "the U.S. dollar will be more vulnerable in 2005."

For exporters and others, the past year's painful fallout from the currency
swing came early and often. In January, Casino Windsor laid off 100 people,
citing the strong dollar as well as congestion at U.S. border crossings.

As the year went on, the currency was blamed for slack earnings by
companies ranging from flight-training specialist CAE to Aber Diamond and
paper producer NorskeCanada.

The impact was especially harsh in the paper industry, where currency
effects were aggravated by difficult market conditions. Thousands of workers
were hit by temporary shutdowns announced by NorskeCanada, Domtar, Tembec and
others.

In September, the St. Anne-Nackawic Pulp Co. in New Brunswick closed,
leaving over 400 people out of work.

The strong dollar also afflicted the central Canadian manufacturing
heartland.

From clothing factories to aerospace manufacturers, "they're really feeling
the pain," said Yvan Guillemette, policy analyst at the C.D. Howe Institute.

"This is like a 35% drop in otherwise very thin profit margins," he said.
"There is no way that a big business can adjust to such a difference in the
take-in from selling its products without feeling significant pain -- without
having to lay off people."

Guillemette and Gampel predict this will intensify in 2005.

But the flying loonie wasn't exclusively bad news.

"The Canadian dollar is just an overwhelmingly positive story," enthused
Colin Ellis, research officer at the Canadian Snowbird Association.

He predicts Canadian visits to Florida will rise to two million this winter
from 1.7 million last year.

For Canadians in the U.S., everything from the all-you-can-eat buffet to
medical insurance is cheaper.

The effect is particularly beneficial for retired people, Ellis said. "Say
... the Canadian dollar goes up 10% -- that's ... huge to these people."

Illustration:
• 1. photo by Suzanne Bird, Sun
Media
• ALL EYES are on our strong dollar. Economists predict the loonie
will continue its Godzilla-like rampage over the economy in the new year.
•
2. photo of DAVID DODGE
• Rates kept steady

Edition: Final
Length: 532 words