OTTAWA - The Canadian dollar's renewed climb on global currency markets is raising concerns manufacturers won't be able to take full advantage of a production spike south of the border.
The loonie rose to the highest level since October on Tuesday after adding nearly a cent in value Monday.
At mid-afternoon the dollar was at 96.17 cents US, and had been as high as 96.74 cents US earlier in the day, the highest since Oct. 20 when the loonie was worth more than 97 cents US. The dollar closed Monday at 96.02 cents US.
The Canadian currency's recent climb comes at a critical time for Canadian manufacturers, arguably the hardest hit sector in 2009.
Canadian exporters have been hoping to get a major boost from a resurgence in U.S. factory production but a stronger loonie and weaker U.S. dollar will make their products less competitive.
However, most analysts believe the loonie will keep rising this year and will rise above the U.S. dollar this spring for the first time since July 2008, when prices for several major Canadian commodities including oil were near all-time highs.
"Exporters in Canada trying to sell stuff other than crude oil will find their goods increasingly uncompetitive in the United States," noted Carl Weinberg, chief economist with U.S.-based High Frequency Economics.
"The death toll amongst Canadian exporters will rise until oil prices and the loonie turn the corner."
Tuesday brought more evidence that U.S. factories are back in business with a report showing solid gains, twice consensus expectations, in inventories and new orders. On Monday, a much-watched manufacturing index rose to the highest level in three years.
"It's turning out to be a goldilocks scenario (in the U.S.) in the short term," said Derek Holt of Scotia Capital, who said gross domestic product could grow as much as eight per cent during the fourth quarter in the U.S.
"Our hope is the U.S. GDP growth rate and the speed of the recovery in production will be so strong that it will help offset the impact of a rising Canadian dollar."
The strong loonie is helping in one area - the government's ability to attract investors for its bonds.
Ottawa announced Tuesday morning it will float a second global bond issue in the near future, this time in the euro denomination.
In September, it raised US$3 billion with a U.S.-dollar bond issue.
"I think there will be a ready market for Canada's debt," said TD Bank chief economist Don Drummond. "We're staggered by hearing $56 billion deficits (by Ottawa), but we're looking pretty good compared to everybody else."